MODULE 5 QUIZ 5

FINANCIALLY DISTRESSED CORPORATION

SOLUTION TO QUIZ
PROBLEM A

COMPANY
STATEMENT OF AFFAIRS
Date
Book Value Assets Current Fair Value Free Assets Gain (Loss) on R

Assets Pledged with Fully Secured

340,000 Equipment 190,000 (150,000)
Notes Pay - PSB (150,000) 40,000

190,000 Land & Bldg 218,500 28,500

Bond Pay-AIG (200,000)
Accrued Interest (10,000) 8,500
Assets Pledged with PartiallySecured
65,300 Accounts Recble 55,000 (10,300)
70,000 Inventory 40,000 (30,000)
Note Payable-PNB (155,000)
Unsecured 60,000
Free Assets
44,700 Cash 44,700 44,700 -
20,000 Prepaid Expense 5,000 5,000 (15,000)
Total Est Amt Avail 98,200
Liabilities with Priority 38,000
Net Free Assets 60,200
Est Def to UnsecuredCreditors 104,800
Total Unsecured Debts 165,000 _______
730,000 (176,800)
Equities
Liabilities with Priority
24,000 Wages Payable 24,000
Accrued Liquidation Exp. 14,000 (14,000)
38,000
Fully Secured Liabilities
150,000 Note Payable - PSB 150,000
200,000 Bond Payable-- AIG 200,000
Accrued Interest 10,000 (10,000)
360,000
Partially Secured Liabilities
155,000 Note Payable -PNB 155,000
Accounts Receivable (55,000)
Inventory (40,000)
Unsecured Liabilities 60,000
105,000 Accounts Payable 105,000
Total Unsecured Liabilities 165,000
Stockholder’s Equity
160,000 Share Capital 160,000
(64,000) Retained Earnings (64,000)
Deficiency Amount 104,800
730,000

Recovery rate for the unsecured obligations = 60,200/165,000 = 0.3648

PNB totally recover = 95,000 + (60,000 x 0.3648)
Deficiency Amount = 104,800
Liiquidation Loss of Suppliers 105,000(1-.3648)
You Can place the accrued expenses of P10,000 and P14,000 under book values but if
you do change the RE deficient to 88,000 and remove the loss of 24,000.

Your deficit ending will still be the same 160,000 - 88,000 – 176,800= 104,800.
PROBLEM B
You are given the following accounts in the Statement of Realization and Liquidation of NoFunds Co
which was under receivership for a year ending June 30, 2022:
Assets acquired P100,000 Liabilities to be liquidated P3,900,000
Assets realized P3,380,000 Liabilities liquidated P2,550,000
Assets not realized P265,000 Liabilities assumed P150,000
Assets to be realized P3,560,000 Liabilities not liquidated P1,190,000
Supplementary credits P600,000 Capital Stock P200,000, July 1, 2021
Supplementary charges P350,000 Retained Earnings-Deficit P500,000, July 1, 2021

Short cut:
1. How much is the debit balance of the assets? Arrange assets on the left or dr side 3,560 + 100=
3,660 and on the right or cr side 3,380+ 265= 3,645 Answer 15,000
Answer P15,000 3,560 + 100= 3,380 +265
3,660 3,645
2. How much is the credit balance of the liabilities? Arrange liab on the right or cr side 3,900 +
150=4,050 and on the left or dr side 2,550 + 1,190= 3,740 Answer 310,000
Answer P310,000 3,900 + 150= 2,550 + 1,190
4,050 3,740
3,740
3. How much is the net income of the business under receivership? Left side 15 + 350= 365 and right side
310 + 600= 910 Answer 545,000 Net Income
Answer P545,000 365 (15 +350)= 910 (310 + 600)
545
4. How much was the cash balance transferred to the receiver?
Total Assets at the start ??? 3,600 = Liab to be liq 3,900 + SHE (300) then Total of 3,600- Assets to be
real 3,560= missing cash Answer 40,000
Answer P40,000 Assets 3,560,000 +300,000 SHE= Liab 3,900,000
5. How much was the cash balance transferred back by the receiver?
Total Assets after ??? 1,435 = Liab not liq 1,190 + SHE 245 (200 -500 + 545) Then total 1,435 – Assets
not real 265= Answer missing cash 1,170,000
Answer P1,170 265,000 = 1,435 (1,190 + 245,000)
265
1,170
6. It can be inferred by the cash transferred back by the receiver that the firm has the capacity to pay all its
obligations. True compare cash beg against cash end
However the firm’s solvency has not improved. Incorrect at the start of receivership (3,900/3,600=
1.08333 insolvent but after receivership 1,190/1435= 83% medyo mataas but it improved.

Long cut:
 NoFunds Co
NOFUNDS CO – IN RECEIVERSHIP
X – RECEIVER

ASSETS
To be Realized: 3,560,000 Realized: 3,380,000
Acquired: 100,000 Not Realized: 265,000

3,660,000 3,645,000
Debit balance 15,000

LIABILITIES
Liquidated: 2,550,000 To be liquidated: 3,900,000
Not Liquidated: 1,190,000 Incurred: 150,000

3,740,000 4,050,000

Credit Balance 310,000

SUPPLEMENTARY
Supplementary Charges: 350,000 Supplementary Credits: 600,000

TOTALS debit side 7,750,000 credit side 8,295,000

Net Income 8,295,000 - 7,750,000 = 545,000

Cash Balance Transferred to Receiver:

Assets = Liabilities + Capital
Non Cash Assets to be realized (3,560,000) = Liabilities to be liquidated (3,900,000) + SHE
beginning (200,000 - 500,000)

Difference representing asset cash = 40,000

Cash Balance transferred back to the Debtor Corporation:

Assets = Liabilities + Capital
Non Cash Assets not realized (265,000) = Liabilities not liquidated (1,190,000) + SHE (CS
200,000 – RE 500,000 + NI 545,000)
Difference represents asset cash of 1,170,000

That in all things God may be glorified!

MODULE 4 QUIZ 4 Prof Zenaida VC Manuel
ADVACC 1 Partnership Instalment Liquidation Mar 2023

TEST I Multiple Choice 15 minutes

1. In a priority program, for installment liquidation, loss absorption ability is calculated by

A. Dividing the partner’s total interest by his profit or loss percentage. ANSWER
B. Multiplying the partner’s capital balance by his profit or loss percentage.
C. Multiplying the partners’ total interest by his profit or loss percentage.
D. Dividing the partner’s capital balance by his profit or loss percentage.
2. A partnership recorded the following entry, among others, in its instalment liquidation proceedings:
Cruz, Capital 100,000
Javier, Capital 50,000
Cash 150,000

This entry reflects

A. share in the realization of non cash assets.
B. distribution to the partners based on the schedule of safe payment. ANSWER
C. additional investment by deficient partners who are solvent.
D. regular drawings of the partners.

3. In a liquidation by installment, a periodic payment may be made to partners based on available cash in
excess of amounts reserved for unsold assets, contingencies and unpaid debts.
In a priority program, the partner with the highest loss absorption balance is most vulnerable to losses.

Both statements are correct.

Both statements are incorrect. ANSWER
The first statement is incorrect.
The second statement is incorrect.

4 A, B and C are partners having equal equity ratio. The following balances are given just after all the
properties were sold:
Liabilities P50,000, A Capital (P110,000), B Capital P150,000 and C Capital (P80,000).

The partnership is insolvent. Correct cash is only 10,000 (CASH 10 = Liab 50 + PE (40))
Cash available is deficient by P40,000. Incorrect

Both statements are correct.

Both statements are incorrect.
The first statement is incorrect.
The second statement is incorrect. Answer

5. The following are considered for computation of restricted interest, except:

A. for future liquidation expenses.
B. possible losses for unpaid liabilities. ANSWER
C. possible losses for unsold assets.
D. possible losses for partners’ deficiency

6. The Metro Manila partnership owned by May, Cath and Tess was terminated. Partnership is in the last
step of its periodic liquidation when the following data appeared as the last balances:

May (2/5) Cath (2/5) Tess (1/5)

Capital Balances (25,000) 10,000 (15,000)
Net personal assets (9,000) 50,000 5,000

If cash balance is P20,000,

I. there are still unpaid partnership liabilities of P50,000. Yes, Assets 20 = Liab 50 + PE (30) Using
acctg equation liabilities can be determined.
II. partnership creditors may be able to collect from Cath. Yes because of the unlimited liab law that
net (less personal creditors) personal properties can be taken over.
III. May’s deficiency is absorbed by Cath and Tess. NO, Cath only. Tess deficiency muna but
net personal assets is insufficient to cover it up .
Pag net personal assets na minus na
personal liabilities (which should always be prioritized against personal assets)
 Which of these statements are correct?

A. I only
B. I and II ANSWER
C. I and III
D. II only

7. In a priority program, for installment liquidation, priority interest is calculated by

A. Dividing the partner’s total interest by his profit or loss percentage.
B. Multiplying the partner’s excess LAB by his profit or loss percentage. ANSWER
C. Multiplying the partners’ total interest by his profit or loss percentage.
D. Dividing the partner’s capital balance by his profit or loss percentage.

8. Safe payments represent amounts of distributions to be made to partners after all non- cash assets have been a
In a liquidation by installment, if a partner’s total interest is insufficient to absorb restricted interest, this partn
cash
investment.
A. Only the first statement is correct.
B. Only the second statement is correct.
C. Both statements are correct.
D. Both statements are incorrect. ANSWER

9. The balances after the last periodic payment showed: total non cash assets of P5, total liabilities of P3, A, cap

1. The assets were sold and realized P8, each partner will get P2.50 Gain of 3 is 1.5 share per partne
2. The assets were sold at a loss of P2, each partner will get P1. Loss of 2 is 1 share per partner
3. The assets and liabilities are realized at carrying amounts, no gain or loss is recognized. Non cash 5 rea

A. Only statement 1 is correct.

B. Statement 1 and 2 are correct.
C. Statements 1 and 3 are correct. ANSWER
D. Only statement 2 is correct.

10. In case of liquidation by instalment, the following statements are incorrect with regard to partial distribution to

A. both creditors and partners are paid proportionately based on their claims.
B. No distribution is made to the partners until all the non-cash assets are sold.
C. The carrying amounts of the unsold non-cash assets are treated as possible losses. ANSWER
D. Estimates of future liquidation costs do not affect the cash distribution to the partners.

ABC decided to liquidate and prepared the following priority program on July 1 2022:

A B (3) C (2)
(1)
Priority 1 50,000
Priority 2 200,000 400,000

Program of Priorities
A B C A B C
1,500 600 1,200
LAB 300 50,000
LAB 600 600 200,000 400,000
600 600 600

11. The loss absorption balance of B must have been P600,000. Answer: kung si B 600 then total
remaining lab is 600 for each. Prove it by solving upward.
Priority of 50 means LAB
of A is 300, priority of 200 means LAB of A is 600 which
 must be the same for C.
Appreciate the program and how the excess lab is determined
and from which if you
multiply by the profit ratio you will get the priority payments.

A C B
A 50/1/6= 300
200/1/3= 600 400/2/3= 600
600 600
Total LAB 1,500 1,200 600
If you compute downwards, the excess lab x profit ratio should tally with Priority 1 and 2

12. The total received by A must have been P150,000 if the total cash available for distribution for 2
months (July and August) was P200,000
A B
Priority 1 50,000
Priority 2 150 x 1/3 50,000 100,000
Total 100,000 100,000

Both statements are correct.

Both statements are incorrect.
Only the first statement is correct. ANSWER
Only the second statement is incorrect.

TEST II. Problems 2AAC

OPR Problem 30 minutes

The balance sheet of the Omar, Perci, and Ruel partnership on July 31, 2022
(before the commencement of partnership liquidation) was as follows:
Cash P 58,000 Accounts payable P 34,000
Inventory 60,000 Notes payable 62,000
Loan to Omar 8,000 Omar, capital(40%) 24,000
Loan to Perci 14,000 Perci, capital(20%) 26,000
Plant assets- 70,000 Ruel, capital (40%) 64,000
net
Total assets P 210,000 Total liabilities & partners’ P 210,000
equity
All partners are solvent. The following activities took place in August:
Half of the inventory were taken over by Ruel at market value of P20,000. The plant assets were sold at a
loss of P15,000 including the P5,000
liquidation expenses. Accounts and notes payable were paid except for accounts of P17,000. They
agreed that there should be cash withheld for future
liquidation expenses of P3,000 until all the assets have been sold.

Prepare a statement of liquidation ( record first the decline in value of the inventory before recording the
take over).
Support with a schedule of safe payment.
Answer the following questions:
a. How much is the total cash available for distribution to the partners? 58 beg + 55 proceeds= P113,000
-96 liab -3 liq exp = 14,000
b. Who among the partners will receive cash?
A. All B. Perci and Ruel C. Ruel ANSWER
c. How much is the cash balance after the cash distribution? 20,000
d. How much is Ruel’s account after the cash distribution? 20,000

Cash Invty Net AP NP Omar(2) Perci(1) Ruel(2)

PA
58 60 70 34 62 16 12 64
Invty take over (20) (20)
Loss on MV of invty (10) (4) (2) (4)
Sale of PA 55 (70) (6) (3) (6)
Liabilities paid (79) (17) (62)
Balances 34* 30 17 6 7 34
Cash for dist Schedule 1 (14) (14)
20** 30 17 6 7 20
*Total cash available can be computed without a liquidation statement 58 + 55 -79= 34
** it should tally with the amount set aside for unpaid debts of 17 and future liquidation expenses of
3

Schedule 1 figures in red omit because there is a statement. If no statement, then the losses above
should be the first to be considered in the schedule of payment.

Omar(2) Perci(1) Ruel(2)

Total interests 16 12 64
Loss on inventory value taken ( 4) ( 2) ( 4)
over
Takeover of inventory (20)
Balances after take over 12 10 40
Loss on realization ( 6) ( 3) ( 6)
Balances before cash dist 6 7 34
Restricted interest for invty
P30 and future liq costs P3 (13.2) (6.6) (13.2)
Balances after rest int of P33 (7.2) .4 20.8
Possible loss for deficiencies 7.2 (.4)* (6.8)
Free interest 14

Refer to Problem A For the month of September.

Half of the inventory balance was sold at a loss of P8,000 plus liquidation expense paid of P2,000.
Liabilities of P10,000 were paid.

Questions: How much should be the cash balance after the cash distribution to the partners? P10,000
(7,000 unpaid debts + reserve for future liquidation cost. P3,000)
What will be the balance of Perci’s interest after the cash distribution? P5 (7 – loss of 2)

Since you are not required to prepare a statement of liquidation, in the schedule of safe payment,
first consider the loss from the second sale:
Loss from realization 8 plus liquidation cost of 2= 10 total loss
Omar(2) Perci(1) Ruel(2)
Total interest brought forward 6 7 20
Loss from second sale P10 (4) (2) (4)
Restricted interest 18, for (7.2) (3.6) (7.2)
invty P15 and future liq costs
P3
idatBalances (5.2) 1.4 8.8
Possible loss for deficiencies 5.2 (1.4) (3.8)
Free interest 0 0 5

Prove: Cash balance 20 + net proceeds 5 – cash dist of 5- 10 liab= cash balance 10
Cash balance of 10= for unpaid liab of 7 + future liquidation cost of 3

You can prove it by preparing a Statement of liquidation but time consuming ito:
Cash Invty Net AP NP Omar(2) Perci(1) Ruel(2)
PA
20 30 17 6 7 20
Sale at a loss 5 (15) (4) (2) (4)
 Liab paid (10) (10)
Balances 15 15 7 2 5 16
Paid Ruel (5) (5)
10 15 7 2 5 11

PROBLEM C

JMO PARTNERSHIP 30 minutes

The adjusted trial balance of Jack, Max and Olive partnership on June 30, 2022 showed the following
balances:

Cash P 400,000
Accounts Receivable, net 100,000
Land and Building 850,000
Loan to Jack 50,000
Total P1,400,000

Accounts Payable P 370,000

Loan from Olive 30,000
Jack, Capital (20%) 300,000
Mac, Capital (50%) 460,000
Olive, Capital (30%) 240,000
P1,400,000

The partners agreed to liquidate and for July P40,000 were collected for half of the accounts receivable
less P5,000 liquidation expenses.
Half of the liabilities to outside suppliers were paid and cash of P10,000 was withheld for future
liquidation expenses until all the properties have been sold.
Question 1: Most vulnerable is Olive.
Question 2: LAB for further cash distribution P900 for each partner.
Question 3: How much is the cash available to partners?
Answer P55,000 (400 + 35 net proceeds -10 rest for liquidation exp -370 liab = 55) Ang
liab bayad o hindi lahat deduct mo to get ava for partners.
Question4: Using a priority program, how much will the least vulnerable of the partners receive in
cash for July? Answer P55,000 If you have the program
It is obvious J will get all the 55,000 available.
Priority Program Payments
J M 0 J M O
250 460 270
20% 50% 30%
1,250 920 900
(330) 66
( 20) (20) 4 10
900 900 900 70 10

Question 3: In the second cash distribution which was for the month of August, how much was the
total cash available for distribution if Jack was able to
receive P2,000 from Priority 2?
Answer 18,000 J M
Priority 1 66-55 11
2 5*
13 + 5= 18

*To arrive at 5 for M, Jacks priority 2 payment is 2,000 divided by 2/7= 7 x 5/7 profit ratio of M =
5
 Question 4: For Olive to be able to receive P12,000, how much should be the total cash realized
from the sale of all the assets net of liquidation expenses?

Answer P90,000

270-12= loss for O 258/.3= 860 total loss – 950 assets = Net proceeds 90 + 400 beg cash = 490 -370
liab = 120 for the partners

To prove: Total Priorities P80,000

Remainder 40,000 (12,000 for Olsen/.3)
Total 120,000
Another proof using a statement but it is time consuming:
400,000 950,000 370,000 250,000
460,000 270,000
90,000 (950) (172,000)
(430,000) (258,000)
490,000 370 78
30 12
(370) (370)
120 78
30 12

THAT IN ALL THINGS GOD MAY BE GLORIFIED

THEORY: IN RED ARE THE REASONS WHY STATEMENTS ARE FALSE OR COMPUTATIONS
SUPPORTING LETTER CHOICE

MODULE 6 QUIZ 6 Joint Arrangements

IFRS 11 defines control as the power of the investor over the investee. FALSE
Power carries with it the right to direct the relevant activities of the investee which eventually will
affect its right over its variable returns.

1. Joint venture requires investors to recognize their right over the net assets resulting from the
contractual arrangement TRUE
2. Joint venture requires the use of the entity method to account for right of the parties over net
assets under IAS 28. FALSE
3. A party that has no control over the arrangement but has a significant influence must account for
its investment also using IAS 28. TRUE
Which of these statements are correct?

In contractual arrangement where A has 35% control, B 35% and C 30%, there is joint control if
agreement requires unanimous decision to be 65%. FALSE COLLECTIVE
IFRS 11 requires a joint arrangement to be bound under a contractual agreement where all parties
have joint control. FALSE DI KELANGAN ALL
Investment In Joint Venture is an account used n the books of the venturers, the entries of which
require a

Debit for Credit for

profit share, return of goods to supplier,
Option A
contributions drawings
Option B contributions, recovery loss share, drawings
contributions, profit
Option C drawings, recovery
share
loss share, return of goods to
Option D contributions, recovery
supplier

Analysis: Recovery is a credit to investment, return of goods to supplier does not affect investment
account.
The Joint Operation account is used in the books of the operators, who are in a business to sell goods, to record all
activities of the operation regarding purchases, expenses, revenues and goods returned or withheld.TRUE
The operator may record only its own transactions in its book by using the joint operation account
which at the point of termination of the arrangement represents an equity account to be recovered if
it is a debit balance. TRUE
he investor recognizes its own assets, liabilities, revenues and expenses plus its share over the assets,
liabilities, revenues and expenses of the joint operation regardless of whether or not it has joint
control over the operation for as long as it has a right over the assets and obligation over the
liabilities relating to the joint operation. TRUE
Venturers who have no control or significant influence prepare separate financial statements in
accordance with PFRS 39.TRUE
A joint arrangement which is not structured through a separate vehicle is always a joint operation. TRUE
A joint arrangement structured through a separate vehicle may be a joint venture or a joint operation. TRUE
A joint arrangement is characterized by the following except THAT IT CANNOT BE CARRIED FOR
AN INDEFINITE PERIOD OF TIME
In contractual arrangement where A has 40% control, B 40% and C 20%, there is joint control if agreement
requires unanimous decision to be 60%. COLLECTIVE pag dami combination like A and B, or A and C or B
and C.
The joint operation account shows a debit balance of P25,000 before recording P35,000 unsold goods.
This will result in a P10,000 profit for the operators. True

In a contractual arrangement where A has 25% control, B 35% and C 40%, there is joint control if agreement requires
unanimous decision of 70% and this is between.
A. B and A B. B and C C. A and C D. A, B and C
Answer B

Which of these arrangements is called a joint operation?

1. A, B and C agreed to jointly manufacture, market and distribute a brand of product where each one
undertakes to manufacture a certain part of the product alongside its regular operation with each
party bearing its own costs and from which revenue they agreed to share equally. This makes it a
joint operation, with the participants having right to assets, obligations to pay liabilities and right
over revenues and expenses.
2. A, B and C agreed to form a contractual arrangement thru ABC Corp and contribute resources
enabling it to manufacture a specific material needed to manufacture their own products according
to their quality specifications. Each will have an equal ownership interest over the arrangement
which will separately own assets and liabilities, and incur costs and expenses. The parties agreed to
purchase all the outputs produced in equal proportion at a price that will break even the cost and
expenses ABC will incur.
ABC Corp is dependent on A, B and C since all the produce will be sold to them: they have
rights over all it assets, and obligation to fund the JOINT operation.

10. Which of these arrangements is called a joint venture?

1. Alphabet Corporation was formed by A Co, B Co and C Co where all will contribute assets to
enable Alphabet to manufacture a specific material which they need to manufacture their products.
Aside from producing materials that will be purchased by these entities, Alphabet Corp shall
produce excess materials to be sold to outside parties at a price thrice than the cost to produce.
 In this case, ALPHABET CORPORATON demand, controls inventory and assumes credit risks,
since its resources goes beyond what each party can give, therefore this is a joint venture.
2. Toyota Corp and Ford Corp sellers of cars agreed to set up a corporation to manufacture small cars to be
sold in the United States. Toyoford was set up to undertake the tasks according to the specifications of the
two car companies. Toyota and Ford dictates the quality of the materials and the mode of processing and
buys all the cars at a 50% sharing ratio. The price is set by the two parties to ensure that all costs and
expenses are covered up. This is a joint operation

Investment In Joint Venture is an account used n the books of the venturers, the entries of which
require a

Debit for Credit for

profit share, return of goods to supplier,
Option A
contributions drawings
Option B contributions, recovery loss share, drawings
contributions, profit
Option C drawings, recovery
share
loss share, return of goods to
Option D contributions, recovery
supplier

Option A return of goods to supplier does not affect investment account.

Option B recovery is return of capital which should be a credit to investment acct
Option D recovery is a credit, return of goods not an investment transactions.

14. The following accounts appear in the personal books of Gail, one of the operators in a joint
arrangement where profits and losses will be distributed equally to the participants. Goods
remaining on hand were already taken over by the operators.

Joint Operation 30,000

Abe 20,000
Kat 15,000

Analysis: Venture is completed. Gail has a balancing figure on the debit side of P5,000 representing accountability
plus loss share of P10,000 to close the account Joint operation account= total accountability of 1P5,000 becomes an
accountability.

Answer: Gail will pay P15,000 to Abe and Kat. Kat will receive 5,000 Abe 10,000.

The following is the ledger account of the joint venture formed by two friends in selling a
specially made product to Fiesta Filipino:
Joint Venture
Merchandise Sales (4/5 of the goods) 250,000
((w/ Freight of 205,000
5,000)
Operating 15,000
Expenses
What is the profit or loss from the venture operation?
Sales of 150,000 – 80% of 205,000 for mdse and freight on sold
units –15,000 operating expenses = 71,000

Mr. Total conducted joint operation setting up a natural gas depot with Mr.Caltex and Mr. Shell. Mr.
Total is to receive a 15% bonus of the venture profit on the completion of the venture after deducting
bonus as an expense. The venture is completed on Oct. 31 with the following balances in the books of Mr
Total Oil:
Debit Credit
Joint Operation P 90,000
Caltex P 5,000
 Shell P 20,000
There is still unsold merchandise carried by the venture which Mr. Total agrees to take over at the cost of
P25,000. The remaining profits are to be divided in the ratio of 25% to Total, 40% to Caltex and 35% to
Shell.
1) How much is the profit or loss from the joint arrangement?
a. P115,000
b. P100,000
c. P65,000
d. P90,000

Answer A P115,000 90,000 +25,000= 115,000

2) How much is the share of Mr. Total in the profit or loss?
Bonus 115/1.25 x .25= 15,000 + 25,000 (.25 x 100,000 remainder)= 40,000
a. P35,000
b. P36,000
c. P40,000
d. P46,000
3) How much is the equity or accountability of Mr Total ?
a. P105,000
b. P130,000
c. P90,000
d. P100,000
Answer P90,000

PROBLEM A

A contractual arrangement was formed by Win Company with Rex Company and Ben Company to sell imported electronic
gadgets. Profits are to be divided equally by the parties after giving Win Company a 5% commission as a purchaser. The
following are their activities in the contractual arrangement:
1. P500,000 cash contribution from each venturer.
2. P1,800,000 worth of goods were purchased under the term FOB shipping point. Down Payment of 50% was
required.
3. Upon shipment of the goods, P150,000 was paid for custom duties, freight and cartage.
4. Sales were made under two terms: cash and on account 2/10, n/30.
A summary for three months showed a total of P2,990,000 collections out of which cash sales was only
P2,270,000 with the balance coming from account sales all collected within the discount period.
5. All the goods were sold except for P36,000 worth of goods taken plus the related P14,000 taxes and freight.
The goods were taken over by Win which affected his profit share as commission.
Nota Bene: Related freight, cartage and custom duties are capitalized (added to cost of merchandise). This is
the implication if problem gives the cost of the goods even if it does not mention the related capital
expenditures.
6. Operating expenses paid, P170,000.
7. Supplier’s outstanding account was paid.
8. Contractual agreement was terminated. Profit was determined.
9. Cash settlement.
Required: T Account with postings appropriate labeled using the transaction no: Income Summary.
Profit share supported by a computation.
T account Cash, and also the Investment in Joint Venture for Win and Ben.
Questions: 16) What was the profit or (loss) from the contractual arrangement?
Answer P920,000
17) What is the share of Win in the profit or loss?.
Answer P365,000
18) What is the cash balance for settlement?
P2,370,000
19) How much will Win receive?
P815,000
20) How much will the other venturers each receive?
P777,500

Solution to problem A
A. Income Summary Cash
2) Purchases 1,800,000 4) Net Sales 2,990,000 1) 2) 900,000
3) Duties & Cartage 150,000 5) Wheld 50,000 1,500,000 3) 150,000
6)Operating Expnses 170,000 4) 5) 170,000
2,990,000 6) 900,000
Balance 920,000 Balance 2,370,000
Books of Win: Books of Rex:
Investment in Joint Venture Investment in Joint Venture
1) 500,000 5) 50,000 1) 500,000
7) 365,000 7) 277,500

815,000 777,500
Books of Ben:
Investment in Joint Venture Table for Profit sharing
1) Win Rex Ben 920,000
500,000 5% com (1,750) (87,500)
7) 87,500 277,500 277,500 (832,500)
277,500 Rem =
277,500
777,500 277,500 277,500
365,000

Settlement for each must tally with the Cash balance (815,000 + 777,500 + 777,500) = 2,370,000

A contractual arrangement was formed by Ray Company and Bo Company to sell imported jewelries.
Profits are to be divided equally by the operators after a 20% commission on sales made. The
following are the transactions for the last three months of the year recorded and posted by each
operator:
A contractual arrangement was formed by Ray Company and Bo Company to sell imported jewelries.
Profits are to be divided equally by the operators after a 20% commission on sales made. The
following are the transactions for the last three months of the year:

1. Ray and Bo ordered P500,000 and P750,000 respectively of imported watches from
Hongkong under the term FOB destination.
2. Upon receipt of purchase, P50,000 was paid by each for customs duties and cartage.
3. Sales were made and the cash collected and withheld by each operator: Ray P850,000 and
Bo P950,000.
4. Operating expenses were paid by Bo, P75,000.
5. On December 31, a count showed that P35,000 worth of goods were unsold and operators
agreed to take these over: Ray P20,000 and Bo P15,000.

Requred: T account of Joint Operation account affecting all the above transactions. Label each
posting using the transaction no.
Computation of profit or loss from the joint operation.
Equity or accountability of each operator. Use a table format.
Entry to record the settlement in each book.
JOINT OPERATION

1. Imported watches from Bo 750,000 3. Cash sales withheld by Bo 950,000

Imported watches from Ray 500,000 Cash Sales withheld by Ray 850,000
1. Customs duties paid by each 50,000 4. Goods taken over by Bo 15,000
50,000 Goods taken over by Ray 20,000
4. Operating expenses paid by Bo 75,000

Goods were taken by Bo P15,000 and Ray P20,000 when they decided to quit the arrangement.
Requred: Schedule of profit or loss from the joint operation. P410,000
Equity or accountability of each operator, support with a schedule.
Entry to record the settlement in each book
In red are the addtl postings to beable to get the profit or loss represented by the JO balance= P410,000
Bo Ray
20% commission 190,000 170,000 360,000
Balance 25,000 25,000 50,000
215,000 195,000 410,000
Contributions 875,000 550,000
Withhelld (950,000) (850,000)
( 15,000) ( 20,000)
Equity 125,000 (125,000)

Problem C
Two importers of frozen pork products formed a contractual arrangement to import pork
from China and agreed to sell these to the Filipino Swine retailers. The following are the
transactions each one reported related to the arrangement.
Books of Reynold Company Books of Fred Company
Joint Operation Joint Operation
Contributed mdse 350,000 Sales wheld Contributed mdse 400,000 Sales wheld 980,000
Paid for freight 50,000 750,000 Paid for cartage 40,000 Goods retained 25,000
Paid taxes and lic Goods retained 15,000 Operating exp pd 5,000
25,000
Balance of 340,000 Balance of 560,000
Profit share 427,000 Profit share 473,000
Equity 87,000 Accountable 87,000
Question 23: How much is the profit or loss related to the contractual arrangement?
Answer 340,000 +560,000= 900,000
Question 24: If they agreed to on 20% commission on sales made and share profit equally, how
much will be the profit share of Fred? 473,000
Answer P R F Total
20% 150 196 346
Rem = 277 277 554
427 473 900

Question 25: How much is the cash settlement? P87,000

Question 26: Who will receive cash? Reynold

Problem D Per books of Ace, the manager, the following account balances were taken:
Debit Credit
Joint Operation Cash P120,000
Joint Operation 70,000
Beth P80,000
Candy 40,000
Ace is to receive salary of P12,000, remaining profits to be divided equally.
1) If there is unsold merchandise of P10,000 taken over by C, what is the profit or (loss) share of Ace
Answer B 70,000-10,000 unsold= loss of 60,000
How much will be the share of Ace? Salary of P12,000 – remainder becomes a bigger loss of 72,000/3=
24,000 share of each. Ace will incur a loss of 12,000.
Equity over joint operation is initially 70,000 less loss share of 12,000= P58,000 cash to be received.
How much cash will Candy receive?
Answer A 40,000 cr balance-10,000 takeover – 24,000 loss share in the remainder= 6,000

When a participant gets a salary which is a profit share, the loss of 60,000 becomes 72,000/3= 24,000 share of each in
the remainder.

How much will Beth receive 80-24= 56 + 6 + 58= total cash of 120,000 to prove your work
 2AAC
CONSIGNMENT SALES
THEORY. Multiple Choice 25%

1. Both the consignment in account and consignment out account were credited for P12,000. This represents
revenue earned from the viewpoint of
a) both consignee and consignor
b) consignor only
c) consignee only
d) some deductions from both parties should be made first
Answer B

2. In consignor’s book a partial remittance is recorded as a debit to cash and the uncollected account as
a) due from consignee c) inventoriable cost
b) deferred cost d) due to consignor
Answer A
3. Consignor paid freight on goods consigned which were not sold. This should not be part of the
a) Consignment expenses c) inventoriable cost
b) balance of consignment out d) balance of consignment in
Answer A the rule is if unsold cost of shipment, shipping cost and freight in should be allocated

4. When goods on consignment are returned, these goods will be included by the
a) consignor until it is sold by the consignee
b) consignor in its regular merchandise inventory account
c) consignee until it is sold
d) consignor in its Merchandise Inventory on Consignment account.
Answer B babalik sa consignor bodega and included as regular stock again

5. Nine of the ten consigned goods were sold and one was returned to consignor. A debit balance in the
consignment out account will represent
a. consignment loss
b. inventoriable cost
c. merchandise inventory-consignment
d. deferred consignment expenses
Answer A… nine sold and one returned e di walang natira. Consignment Out balance will represent either
a loss pag debit balance (cost and expenses more than the credit to sales)

6. The consignment in account has a credit balance of P10,000 after remittance was made by consignee. This
represents
a. Sales made by consignee
b. Unsold goods in the hands of consignee
c. Amount still due to consignor
d. reimbursable expenses not yet charged to consignor
Answer C after remittance dapat zero balance na otherwise it means nag partial lang so there is still amount
payable to consignor.

7. Only eight of the ten consigned goods shipped to consignee were sold. A debit balance in the consignment
out account will represent
a) consignment loss
b) inventoriable cost
c) amount still due from consignee
d) advances received from consignee
Answer B pag may unsold the consignment out will still have a debit balance representing inventoriable
cost in the hands of consignee

8. Consignee paid freight on goods returned. This freight should form part of
a. Consignor’s expenses chargeable against revenue
b. inventoriable cost of consignor
c. freight expense of consignee
 d. deferred consignment cost of consignor
Answer A

9. Goods still in the hands of consignee should form part of

a. Consignee’s inventory separately titled Inventory- on consignment
b. Consignor’s inventory if method used is consignment profit not determined separately
c. Consignor’s inventory if method used is perpetual inventory method.
d. Consignor’s inventory regardless of method used in recording consignment profit
Answer D refer to no 7 even if in consignee’s hands, it is owned by consignor and should be part of
inventory regardless of method used.
10. For determining correct consignment profit, which of the following should be allocated
between consigned goods sold and goods still in the hands of consignee?
a) cost of goods shipped, shipping cost, delivery expense, commission
b) shipping cost, cartage in, installation, delivery expense
c) cost of goods shipped, shipping cost including import duties and insurance, freight in
d) cost of shipment, shipping cost, cartage in, freight out
Answer C look for allocable costs only, di pwede kasama yong mga delivery expense, commission,
installation pang sold units lang ito.
11. Consigned goods returned by the consignee should be recorded by consignor by
a) Debiting this to merchandise shipment on consignment
b) Crediting this to merchandise shipment on consignment
c) Debiting this to merchandise inventory- Consignee
d) Debiting this to consignment out
Answer A debit consigment out and credit merch shipment pag nag ship, reverse entry pag may return
parang ibig sasbihin balik ulit sa consignor. Memorize the entries.
12, 13 and 14 are based on the following:
Consignment Out - Bless Inc.
Shipment cost P50,000 Net Sales (3 sets net of P27,000
Freight for 10 sets shipped 5,000 10% com)
Cartage In P 1,500
Delivery 600
12. Unit sales price is
a) P10,000 b) P9,000 c) P3,000 d) P5,000

ANSWER A 27,000/.9= 30,000 /3 sets= 10,000 per set

13. Remittance should be

a) P25,000 b) P24,900 c) P20,000 d) P22,000
ANSWER B 27,000-1,500-600

14. Profit or loss of consignor is computed as follows:

a) 27,000 – 15,000- 1,500- 450- 180
b) 27,000 – 50,000 – 1,500- 1,500- 600
c) 27,000 – 15,000 cost of goods- 1,500 shipping cost- 450cartage in – 600delivery
d) 27,000- 15,000-3,000-1,500- 450- 600
ANSWER C
15. Applying PFRS 15, consignee recognizes revenue when consigned goods are
16. received from consignor and displayed in the store. c) sold by consignor to customers
17. shipped by consignor d) sold by consignee to customers and receives payment
Answer D di ba nasa kamay ng consignee e di siya ang magbebenta and receive payment
16. The title Merchandise Shipment on Consignment is closed in consignor’s book at the end of the
accounting period to determine
a) total cost of goods sold c) total cost of goods shipped
b) regular cost of goods sold d) total cost of goods returned
Answer B
Explanation: consignor sells on two terms: regular and on consignment. So my title siyang sales, purchases,
inventory beg, inventory end. Assume you shipped goods on consignment of P50,000. If your closing entry is
(assumed figures):
Invty End 120,000
 Cost of Sales or Inc Sum (total cost of sales) 180,000
Invty Beg 75,000
Purchases 225,000
Why is this wrong, kasi yong cost of sales para sa consignment sales nakahiwalay na sa title Consignment Out,
kaya we use the method called Consignment Profit Determined Separately. So para di na lalabas sa regular
cost of sales, yong Merchandise Shipment On Consignment na credit when you shipped to the consignee of
P50,000 should now be closed to the debit side:
Invty End 120,000
Merchandise Shipment on Consignment 50,000
Cost of Sales (regular) 130,000 (di na 180,000)
Invty Beg 75,000
Purchases 225,000
17. If consignee did not make a full remittance, which account will have a debit balance?
a) Consignment In c) Due From Consignee
b) Consignment Out d) Due To Consignor
Answer C same concept as no 2 above.
18. Consignee SM Inc. made a full remittance of P10,000 to Manufacturer after deducting consignment
expenses of P5,000 and a 20% commission on sales. The consignment sales amounted to
a) P15,000 b) P20,000 c) P22,500 d) P18,750
Answer D

Analysis: reconstruct your account sales

Sales (100%) ??
Less 20% commission xx
Net Sales 80% xx 15,000
Less Consignment Expenses 5,000
Remittance 10,000

Reverse procedure, work back 10+5= 15/.8= 18,750

19. Refer to no. 18. Total to be debited by Manufacturer to consignment out representing charges of consignee
amounted to
a) P5,750 c) P5,000
b) P8,750 d) P3,750
Answer B

Analysis: Again you need the account sales: commission 18,750 x .2= P3,750
+ consignment expenses 5,000
Total charges of consignee=P8,750

20. Consignee was required to give a 25% advance on merchandise consigned based on total cost of P120,000
for 10 sets. Consignee was to sell this at a gross profit rate of 50%. Consignment expenses paid by the
consignee amounted to P45,000 including a 20% commission charged for P14,400.
Prepare an account sales and answer the following:

Consignment sales must have been Sales *P72,000

a) P72,000 c) P100,000 CE 45,000
b) P150,000 d) P180,000 For remit 27,000
Answer A Advances ** 9,000 3,000 x 3
Remittance 18,000

*14,400/.8= = 72,000
**.25 x 120,000= 30,000 total advances/10= 3,000 per set x 3 = 9,000

21. Refer to no 20. Amount to be remitted after deducting advances

a) P3,600 c) P12,600
b) P18,000 d) P27,000
Answer B

Amount to be remitted before deducting advances for 2BAC answer is D P27,000

22. Refer to no. 20. Consignor must present in the balance sheet current liability section
e) Advances from Consignee P17,500 c) Due to Consignee P21,000
f) Advances to Consignee P12,500 d) Due from Consignee P30,000
Answer C
3,000 x 7 units still on hand = 21,000
23. The consignee has a right over consignment sales to receive a 20% commission. At the end of March,
after preparing an account sales, the consignment in account has a debit total of P60,000 including
remittance and a credit total of P75,000.

The balance of P15,000 represents…….. Answer: obligation to pay consignor

24.

1. Consignor should treat consignment expenses paid by consignee related to consigned

goods returned immediately as expenses to be deducted from the consignment sales. True
2. The above consignment expenses are generally deducted from consignment in to decrease
obligation to pay by the consignor. False dapat consignee

25.

1. The Consignment In account is a real account, debited to charge consignor for reimbursable
expenses and credited to charge consignee for sales withheld.T

2. The consignment In account after deducting the required deposit will reflect a zero balance. False
required deposit advances lang ito dapat required remittance para magzero balance.

26.
The consignment out account has a total debit of P40,000 and a credit total of P50,000 before the
inventoriable costs were determined. If the total inventoriable costs is P7,500, how much is the
consignment profit?
Answer 17,500 40 = 50- 7.5 or 40-7.5= 32.5-50=17.5

27. Two sales arrangements are described below as consignment arrangements:

Avon has a web-side which displays an array of products from different suppliers and from which
customers could choose from. Avon arranges the deal between the supplier and the customer. The
price is fixed by the supplier and the merchandise delivered by the supplier direct to the customer.
Avon also makes the necessary arrangement on how supplier will be paid. The purchase is non-
refundable, and after the sale is fixed by Avon, it has no further responsibility. The merchandise is
delivered by the supplier and Avon receives 10% of the agreed sales price.
Acer has a web-side which displays an array of raw materials which can be manufactured into
different electronic gadgets based on customer’s specification. The plan is discussed between the
interested customer and Acer, and upon finalization, the price is fixed and requirement for installation
agreed upon. Acer looks for a subcontractor, Real Co as installer, who charges Acer for a certain
price. Acer’s profit is based on the difference between price charged by Real Co and the price agreed
upon by the customer and Acer. Any defect is a responsibility of Acer, although warranty is given by
the supplier.
Answer: Only the first arrangement is a consignment sales.

28. Seven of the ten consigned goods shipped to consignee were sold while one set was recalled by
consignor. All these were recorded by consignor including remittance and the result of the
consignment sales. The consignment out account still has a debit balance of P15,000 which will
represent
Option A Consignment loss.
Option B Inventory cost and deferred consignment expenses for two sets.
Option C Inventory cost for two sets and deferred consignment expenses for three sets.
Option D inventory cost for two sets and deferred consignment expenses for one set.
ANSWER OptionB there are 2 unsold inventoriable cost consists of inventory cost and deferred
consignment expenses.

29. The consignment out account has a debit total of P65,000 and a credit total of P50,000 before
the inventoriable costs were determined. If the total inventoriable costs is P10,000, how much is the
consignment profit or loss?
65-10=55 debit is still higher against credit of 50,000= 5,000 loss ANswer
Pagminus inventoriable na, balance of CO will either be a profit or loss.

PROBLEMS 2AAC

A. The Consignment Out account in the books of Pasig Company is shown below. Among the things agreed
upon was a 15% commission, all expenses reimbursable, with Pasig fixing the sales price at 150% of cost,
a policy for both regular and consignment sales
Consignment Out- Manila Company
Merchandise shipped (12 units) Sales (6 units) ?
P120,000 Returns (2 units) ?
Shipping cost
6,000
Charges of consignee:
Freight In
3,000
Delivery expenses
4,500
Freight for returns
2,000
Commission
?
Required:
a) Entries of Manila Co to record 1) sales with commission, and 2) remittance if P15,000 was not
remitted representing uncollected accounts.
b) Entry of Pasig to record the remittance based on the account sales received.
c) Analysis of costs and expenses.
Answer the following:
1. How much was remitted by Consignee? 52,000
2. Consignment profit amounted to? 4,000
3. Inventoriable cost amounted to? 43,000
4. You are given the following additional data in the books of Pasig:
Inventory, Beg 150,000
Inventory, End 80,000
Purchases 170,000
How much was the total regular sales of the company for the same period.
Regular cost of sales 320,000-80,000-100,000= P140,000 x 150%= Regular sales P210,000.

Account Sales 120/12= 10 x 6= 60,000 cost x 1.5 = Sales 90,000

Charges 9,500
Commission 13,500
Remittance 67,000
Remitted 52,000
Amount still due 15,000

Sales 90,000
Cost 120,000 x 6/12 (60,000)
 Expenses 6,000 + 3,000=9,000 x 8/12= (6,000)
Com,/ Del/ Freight for returns 4.5+13.5+2 (20,000)
Profit 4,000

Inventoriable cost 120,000 +6,000 +3,000=129,000 x 4/12 = 43,000

To prove inventoriable CO debit side 120 cost +15.5 + 13.5 + 4 profit – 90 sales -20 returns= 43
PROBLEM B. 3 x 5= 15%
Refer to Problem A. The consignee was able to sell 2 more sets the following year, and prepared an account
sales and made a full remittance after deducting charges for consignment expenses.
a. Prepare the account sales. How much should be remitted? 39,000
b. Record in consignor’s book the remittance upon receipt of account sales.
c. Consignment Profit of consignor. 2,500
d. Total of the balance sheet accounts related to the consignment in consignor’s book. 21,500

120/12= 10 x 2= 20,000 cost x 1.5 = Sales 30,000

Charges Delivery 1,500
Commission 15% 4,500
Remittance 24,000
Old account 15,000
Total for remittance 39,000

GP 30,000 sales-20,000 cost 10,000

Shipping and Freight 9,000 x 2/12 (1,500)
Delivery and com (6,000)
Profit 2,500

Inventoriable cost 20,000 + shipping and freight 1,500= 21,500

43,000 + 6,000 + 2,500 – 30,000= 21,500

Problems C
CONWAY Manufacturing Co consigned to CD Appliance Corporation, 10 Sony colored TV sets. Each set
costs P25,000 each. Freight out was paid by the consignor in the amount of P3,600. CD Trading was
required to give an advance payment equal to 25% of the sales price. CD sold 3 TV sets and rendered
an account sales after deducting the following from the selling price of the 3 sets:

commission of 12% on selling price

freight in P 1,500
cost of antennae tape given free 1,400
delivery and installation 2,800
A remittance was received by Conway net of P45,000 advances for the sets sold.
Required: a. Commission amount P21,600
Compute first for the total Sales of CD Appliance Corporation
Clue: P45,000 advances deducted in the account sales for the sets sold.
b. Remittance. Prepare an Account sales P107,700
c. Entry of CD and Conway to record remittance.
d. Consignment profit of Conway. 77,670
e. T account Consignment Out, identify postings, give the
balance. Prove by giving the inventoriable costs. 178,570
e. Balance sheet account(s) of CD. In the SFP of CD, there should be an Advances to Consignor in the
amount of P105,000
f. Two current asset accounts should be in the SFP of Conway, one of which will be Deferred
Consignment Expenses amounting to P3,570.

Sales 45,000 advances for the 3 sets /.25= 180,000

Charges Com 21.6+ freight 1.5 cost of tape 1.4 +del 2.8 27,300
For remittance 152,700
Advances 45,000
Remitted 107,700
Sales 180,000
Cost 75,000
Shipping 360 x 3 1,080
Consignment expenses 26,250 21.6+450+4.2
Consignment profit 77,670

Inventoriable: cost 25 x 7 175,000

Shipping 360 x 7 2,520
Freight 150 x 7 1,050
Total 178,570

To prove: 250,000 + 3,600 + 27,300 + 77,670-180,000= 178,570

PROBLEMS FOR 2BAC

Barbie Co. consigned to May Co the following merchandise which sales price is 200% above cost: 5 units of
Sony aircon costing P4,000 per unit with total freight paid of P3,000. One month after, May Co rendered an
account sales as follows:

Account Sales Sold Unsold

No. of units sold 3 x 12,000 36,000 36,000

Cost of shipment (12,000) 8,000

Shipping cost (1,800) 1,200

Cartage In P500 per set (2,500) ( 1,500 ) 1,000

Delivery a total of P3,500 (3,500) (3,500)

Promotion P5,000 (5,000) (5,000)

Commission 15% of sales (5,400) (5,400)

11,800

Profit 6,800

Inventoriable cost 10,200

20,000 + 3,000 +2,500+ 13,900 +6,800 - 36,000= 10,200

Required: Construct T accounts for Consignment In and Consignment Out , properly labelled. Table
determining consignment profit, a computation for inventoriable cost.

Consignment In Credit side 36,000

Consignment In debit side 2,500

3,500
5,000
5,400 16,400
For remittance 19,600
Advances 6,000

The following represents the account for goods consigned to Bless Inc. for the month of December:
Consignment Out - Bless Inc.

Shipment cost P120,000 Sales (6 sets for a 15% com) P???

 Freight for 12 sets shipped 6,000
Cartage In 3,000
Delivery 4,500

Sets were sold at 150% of cost. 2 sets were returned and Bless paid P2,000 for this. Bless has not
remitted P15,000 of the required remittance.
Required: Prepare an account sales.
Sales 120,000/12= 10,000 x 1.5= 15,000 x 6= 90,000 Sales 90- Cost 60 = GP 30,000
Commission (13.500) -13,500
Cartage, delivery, returns (9,500) Freight 6,000 x 8/12 - 4,000
Cartage 3,000 x 8/12 - 2,000
Delivery and returns - 6,500
Not remitted (15,000)
Remittance 52,000 Profit P4,000
Inventoriable cost 120,000 + freight and cartage 9= 129,000 x 4/12= 43,000

January:
2 more sets sold 15 x 2= 30,000 x .85= 25.5 -1.5=24,000 + 15,000 old acct=39,000 remit Jan
Sales 30,000 – COS 20,000 = GP10,000-1,000 ship -500 cart -4.5 com-1.5 delivery=2,500 profit
Deferred consignment expenses freight and cartage 9x 2/12= 1,500