Easy Questions No.1 Under a royalty agreement with another company, W and Co. will pay royalties for the assignment of a patent for three years. When should the company recognize the royalty payment as an expense? A . B . C . D . In the period paid. In the period incurred. At the date the royalty agreement began. At the date the royalty agreement expired. Easy Questions No. 2 The following shall be considered as "de minimis" benefits not subject to income tax as well as withholding tax on compensation income of both managerial and rank and file employees, except: a. Monetized value of vacation and sick leave credits paid to government officials and employees b. Monetized unused sick leave credits of private employees not exceeding ten (10) days during the year c. Medical cash allowance to dependents of employees, not exceeding P750 per employee per semester or P125 per month; d. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to not more than P1,500; ANSWER: B - Must be “vacation leave” instead of “sick leave” BASIS: Sec. 1 of RR No. 5-11 (Further amendments to RR Nos. 2-98 and 3-98, as last amended by RR No. 5-2008, with respect to "De Minimis Benefits". Easy Questions No. 3 Diamante Motors sells locally manufactured jeeps on installments. Information presented below relates to Diamante’s operations for the last three calendar years. Cost of installment sales Gross profit on installment sales Outstanding installment rec’l, Dec. 31: From 2015 From 2014 From 2013 2015 P8,765,625 32% P9,728, 125 3,025, 000 2014 P7,700,000 30% 2013 P4,950,000 28% P8,387,500 1,512,500 P4,812,500 Diamante Motors uses the installment method of accounting. How much is the total realized gross profit for calendar year 2015? Answer: P3,044,250 From 2015 [(8,765,625/68%)9,728,125]*32% From 2014 (8,387,500-3,025,000)*30% From 2013 (1,512,500*28%) Total P1,012,000 1,608,750 423,500 P3,044,250 Easy Questions No. 4 The inventory on hand at December 31, 2015 for FLASH Company is valued at a cost of Php947,800. The following items were not included in the inventory amount: a. Purchased goods in transit, shipped FOB destination invoice price Php32,000 which included freight charges of Php1,600. b. Goods held on consignment by FLASH Company at a sales price of Php28,000, including sales commission of 20% of the sales price c. Goods sold to ARROW Company, under terms FOB destination, invoiced for Php18,500 which includes Php1,000 freight charges to deliver the goods. Goods are in transit. d. Purchased goods in transit, terms FOB shipping point, invoice price P48,000 freight cost Php3,000. e. Goods out on consignment to COCO Company, sales price hpP36,400. Assuming that the Company’s selling price is 140% of inventory cost, the adjusted cost of Arrow Company’s inventory at December 31, 2015 should be: ANSWER: Php1,037,500 Unadjusted balance a. Goods in transit (P18,500-1,000)/140% b. Purchased goods (P48,000+3,000) c. Goods on consignment (36,400)/140% Adjusted balance Php947,80 0 12,500 51,000 26,000 Php1,037,3 00 Easy Questions No. 5 Which of the following is true in relation to law of diminishing marginal utility? A. Marginal utility will decline as a consumer acquires additional units of a specific product. B. Total utility will decline as a consumer acquires additional units of a specific product. C. Declining utilities causes the demand curve to slope upward. D. Margin is excess of cost over sales. Answer: A The law states that marginal utility declines as consumers acquire more of a good. Therefore, answer (a) is correct. Answer (b) is incorrect because total utility will not decline as more of a good is acquired. Answer (c) is incorrect because the demand curve slopes downward. Easy Questions No. 6 (LW) Which of the followingterms is normally not associated extinguishing an obligation through the process of novation? D a Expromission . b Subrogation . c Delegacion . d Remission . with Easy Questions No. 7 Which of the following situations is most likely to be the subject of a written interim report to the engagement client? a) Seventy percent of the planned audit work has been completed with no significant adverse observations. b) The auditors have decided to substitute survey procedures for some of the planned detailed review of certain records. c) The engagement program has been expanded because of indications of possible fraud. d) Open burning at a subsidiary plant poses a prospective violation of pollution regulations. Solution: D a) Incorrect. There is no need for earlier consideration in this situation. b) Incorrect. Changes in auditor methodology are not of particular importance to the engagement client. c) Incorrect. Indications of possible fraud would not be communicated to the engagement client. d) Correct. Such a situation would require immediate attention. Easy Questions No. 8 Which of the following is the most likely strategy to reduce the breakeven point? A. Increase both the fixed costs and the contribution margin. B. Decrease both the fixed costs and the contribution margin. C. Decrease the fixed costs and increase the contribution margin. D. Increase the fixed costs and decrease the contribution margin. Answer: C The short-cut breakeven point formula is calculated as follows: Thus, by decreasing the numerator (fixed costs) and increasing the denominator (contribution margin), the breakeven point will be reduced. Easy Questions No. 9 Minecraft Company quarries marble at two locations and sells it to be used in construction of buildings. The Company provides for a depletion rate of 5%. The quarry is leased on a year-to-year basis with the Company paying a royalty of Php0.05 per ton of marble quarried. Other data relevant to the requirements are: Estimated total reserves, tons Php60,000,000 Tons quarried through December 31, 2014 4,000,000 Tons quarried, 2014 1,600,000 Sales, 2014 1,200,000 How much would be the depletion for 2014 for financial reporting purposes? ANSWER: P-0Since the two quarries are merely leased and the Company pays a Php0.05 royalty for every ton of marble quarried, Minecraft will not recognize the quarries as assets in its books and will record only royalty expense for leasing them. Hence, there is no depletion expense. Easy Questions No. 10 AAB Construction Company uses the percentage-of-completion method of accounting. In 2014 AAB began work under contract #1348, which provided for a contract price of P20,000,000. Other details follow: Cost incurred during the year Estimated costs to complete, as of December 31 Billing during the year Collections during the year 2014 P3,000,000 12,000,000 2015 P15,750,000 -0- 3,600,000 2,500,000 15,400,000 15,500,000 An analysis of repair parts charged to maintenance would quantify the excessive number of items and detect that abuse may be occurring.000.000) Percentage of completion Contract price Revenue in 2014 costs P3. Average Question No. d) Incorrect. so the test would only verify the fraudulent paperwork.000. c) Correct. Solution: C a) Incorrect.000. Instead. the manager processed receiving documents and charged the parts to machinery maintenance accounts. 1 1.The portion of the total contract price to be recognized as revenue in 2014 is Answer: P4.000 Cost incurred during the year Total estimated (3. b) Physical inventory testing of replacement parts for existence and valuation. The auditor has no information on how long this might have been occurring. The manager was authorized to process both the purchase and receipt. The payments for the undelivered parts were sent to the supplier. The manager of a production line has the authority to order and receive replacement parts for all machinery that require periodic maintenance.000.000.000 P4. The unneeded parts were never delivered.000 Average Question No. wishes to elect . b) Incorrect. and the money was divided between the manager and the family member. The internal auditor received an anonymous tip that the manager ordered substantially more parts than were necessary from a family member in the parts supply business. 2 (LW) Under the cumulative voting system of electing directors of a 5-member board of a duly organized corporation. distributed equally among 5 candidates that the stockholder D a.000 15. Physical testing would not locate nonexistent parts that have already been charged to maintenance. Lack of segregation of duties allowed the fraud to occur. The current quarter’s expense would equal the prior period’s activity unless the manager just started this fraud.000+12. c) Analysis of repair parts charged to maintenance to review the reasonableness of the number of items replaced.000 20% 20. d) Review of a test sample of parts invoices for proper authorization and receipt.000. Which of the following tests would best assist the auditor in deciding whether to investigate this anonymous tip further? a) Comparison of the current quarter’s maintenance expense with prior-period activity.000. a stockholder owning 100 shares is entitled to cast a total of 20 votes. c.850 In 2015.000 units BEP in units = Fixed Cost (SP per unit . distributed equally among 5 candidates that the stockholder wishes to elect 100 votes.P2) P150.150) (3. 3 The McGraw Company manufactures and sells Abriza handbags to assorted prints.000 *120%] 9.00 P2. variable cost to manufacture will increase by 25%. all casted in favor of a single candidate that the stockholder wishes to elect 500 votes.150) .000 P5. the company estimates that the selling price will be P9. d.50 per piece. and fixed costs will increase by 20%.000) (180.000 (3. Income tax rate of 35% will not change.00 25.000 9. Data for 2014 follows: Selling price per piece Variable cost per piece Number of handbags to breakeven Net post-tax income (35% tax rate) P8.000 0 Squeezed (150. How many units of handbags does McGraw Company must see in 2015 in order to maintain the same net income after tax as in 2014? Answer: 27. 100 votes. with majority of votes casted in favor a single candidate and remaining votes distributed equally among 4 other candidates that the stockholder wishes to elect Average Question No.000)[P150.VC per unit) Fixed cost = BEP in units * (SP per unit .b.000 units * (P8 .VC per unit) Fixed cost = 25.0 Fixed cost = 00 Contribution Margin Fixed cost Net income before tax [(NI after tax / 35%)] Income tax [35% NI before tax] CURREN LAST YEAR T YEAR P189.00 P159. 000 units Average Question No. An entity enters into transactions in all markets and can access the price of those markets for the asset at the measurement date.0 00 P7 27.850 P189. after taking into account transaction costs and transport costs. The most advantageous market is the market that maximizes the amount that would be received to sell the asset or minimizes the amount paid to transfer the liability.850 P5. in the most advantageous market for the asset. . which of the three markets is the most advantageous market and what is the fair value of the asset? ANSWER: Market B and FV is Php23 Per PFRS 13.(P2 * 125%))] Sales to meet last year's net income P5. 4 An asset is sold in three different active markets at different prices. Market B is the most advantageous market as it has the largest net amount that would be received.5 . a fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market of the asset or liability or in the absence of a principal market. Fair Value Measurement. Thus.Net income after tax Contribution margin New CM Rate [(P9. Market A Price that would be received Transaction costs in that market Costs to transport the asset to the market Net amount that would be received Market C Php26 (3) Market B Php25 (1) (2) (2) (2) 21 22 20 Php23 (1) Assuming none of these markets is the principal market. Assume that Mimi has outstanding 6% P 100 par value cumulative preference shares with an aggregate value of P 1. The income and dividend figures for both Keith Urban and Mimi Company are as follows: Income Dividends Keith Urban 201 P P Corporation: 4 1.550. 2014? Answer: P1. Mimi’s remaining assets had a book value equal to their fair values.5 5 00 00 Keith Urban’s income shown does not include any dividend income from Mimi.0 5 00 00 Income Dividends Mimi Company: 201 P P 4 340.887.380. 5 On January 2.675.000 Sale to private entities subject to 0% 150.000 Total sales for the month 400. Keith Urban’s accumulated profits balance at the date of acquisition was P 5. Non-controlling interest shall be measured at fair value. 6 King’s Landing Corporation has the following sales during the month: Sales: Sale to private entities subject to 12% P 50.000. Mimi’s equipment with a remaining life of 5 years had a book value of P 2.000 Sale of exempt goods 200.000 55.000 201 569.5 127.572.000.572.000 that are classified as equity and are held by non-controlling interests. Keith Urban Corporation purchased 70% of the ordinary shares of Mimi Company for P 4.700 Average Question No. At that date.000. What is the income attributable to parent on December 31.Fair value then is equal to Php23 which is the price that would be received minus the costs to transport the asset to the market.744.0 510.958.000 and a fair value of P 2. 2014.500 425.500.000 201 1. Mimi Company had P 4.500 of ordinary shares outstanding and accumulated profits of P 1. All intangible assets except goodwill are expected to have remaining lives of 10 years. Average Question No.785.500.000 The following input taxes were passed on by its VAT suppliers: . customer lists and items similar in substance shall be recognized as intangible assets. Internally generated brands. Internally generated goodwill shall not be recognized as an intangible asset.000 X P20. c.500 P32. b.000 3.750 P10. publishing titles. 16-05. P21.110-4 of RR No.000 2.000 P18.000 P18. as amended.000 400.000 3.Input tax: Input tax on taxable goods Input tax on zero-rated sales Input tax on sale of exempt goods Input tax on depreciable capital goods not attributable to any specific activity (pertains to monthly amortization for 60 months) P5. Answer: C .000 20. an entity classifies the generation of the asset into a research phase and a development phase. The cost of an internally generated asset comprises all directly attributable costs necessary to create. Average Question No.000 BASIS: Section 4.000 ANSWER: D SOLUTION: Input tax on sale subject to 12% Input tax on zero-rated sale Ratable portion of the input tax not directly attributable to any activity: Taxable sales (0% and 12%) X Amount of Total Sales input tax not directly attributable 200. C . 7 Which statement is incorrect? A . D .000 10. To assess whether an internally generated intangible asset meets the criteria for recognition.000 How much is the creditable input tax for the month? a. mastheads.000 Total creditable input tax for the month P5. produce and prepare the asset for its intended use. d. B . 000 ANSWER: C Solution: (12. mastheads. The capital gains tax due is a. B . publishing titles. Later.000. that is attributable to a particular risk and could affect profit or loss. The fair market value as determined by the BIR is P12.000. P720. 8 Spouses Ramsay and Sansa sold their family home. D . Financial Instruments: Recognition and Measurement.000.000) = P144. .000 but the fair market shown in the schedule of values of the City Assessor is P11. customer lists and items similar in substance shall not be recognized as intangible assets. 9 The following are types of hedging relationships except? A . or an identified portion of such an asset. paragraph 86 provides that hedging relationships are of three types a sfollows: a) fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment.000. a capital asset for P10. It was acquired in 1980 at P3.000 for the acquisition of their new family home. c) hedge of a net investment in a foreign operation as defined in PAS 21.000.000.000.000.000.000.000 P120. b.000 P576. Intangible Assets paragraph 63 states that internally generated brands. liability or firm commitment.000/10.000 x 6%) x (2. C .000 P144.PAS 38. Fair Value Hedge Cash Flow Hedge Hedge of a Net Investment in a Foreign Operation Hedge of Foreign Currency Risk of a Firm Commitment Answer: D PAS 39.000. c. b) cash flow hedge: a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss. the spouses utilized P8. d. Average Question No.000 Average Question No. 030 c. 10 A race track bettor won on the following bets: On double. taxes and other deductions. certain actual transactions are “tagged. 1 What computer-assisted audit technique would an auditor use to identify a fictitious or terminated employee? a) b) c) d) Parallel simulation of payroll calculations. and accumulated or used leave times.Average Question No. P412 ANSWER: C Solution: On double {[(200÷10)x100] – 200} x 4% On winner take all {[(500÷50)x700] – 500} x 10% On forecast {[(1. b) Correct. In this type of CAAT program. but would not identify a fictitious or terminated employee. A CAAT program can recalculate amounts such as gross pay. c) Incorrect. P1. This is important because fictitious or terminated employees will generally not have any deductions. a data file is created that . These recalculations can help determine if the payroll program is operating correctly or if employee files have been altered. Recalculations of net pay. Tagging and tracing of payroll tax-rate changes.000} x 4% Total percentage tax due P 72 650 80 P 802 Difficult Question No.000 and dividend of P150 per P50 ticket The total percentage tax due from the winnings is a. This type of computer-assisted audit technique (CAAT) program can identify employees who have no deductions. This technique might identify problems with the client’s processing but would not identify a fictitious or terminated employee. d) Incorrect. a bet of P1. net pay. In a parallel simulation.000÷50)x150] – 1. Exception testing for payroll deductions. P2. data that were processed by the engagement client’s system are reprocessed through the auditor’s program to determine if the output obtained matches the output generated by the client’s system. P802 d.060 b.” and as they proceed through the system. a bet of P500 and a dividend of P700 per P50 ticket On forecast. a bet of P200 and dividend of P100 per P10 ticket On winner take all. Solution: B a) Incorrect. 2 Statement I: A corporation may be a partner in a partnership. Diana can lease an auxiliary generator to provide power during outages. If Diana leases an auxiliary generator in 2015 the estimated savings (or additional expenditures) for 2015 would be? Answer: Php1. This would not.traces the processing through the system and permits an auditor to subsequently review that processing.600 savings In 2014 Diana incurred the following costs due to power outages: Number of outages per month 0 1 2 3 x x x x Number of months 3 2 4 3 12 19 outages x P 400/outage = P7. Difficult Question No. identify a fictitious or terminated employee.600 or Php1. Statement II: A corporation may be a stockholder of another corporation. For P500 per month. A a Only statement I is false c Only statement III is false . . . Statement III: A limited partner may contribute money to a partnership but not services.600 Number of outages 0 2 8 9 19 . Difficult Question No. 3 During 2014. however. b Only statement II is true d All of the statements are true . Diana Corp. experienced the following power outages: Number of outages per month 0 1 2 3 Number of months 3 2 4 3 12 Each power outage results in an out-of-pocket costs of P400. an entity has an asset of Php4. Therefore.000 Capital Gain (capital asset held for one(1) year) P 50.91%) Php836 Difficult Question No.0 00 Expected average tax rate (115.000) in 2015 by leasing the generator. Expected tax to be paid in 2016 (500.000) 20.600 – P6. Diana would be expected to save P1.600 (P7. In 2016.The cost of leasing an auxiliary generator is only P6.000.000 Business expenses P200.000 of taxable profit earned and 30 percent on any remainder.000 How much is the taxable income of John Snow Company for the year 2015? Answer: P300.91% Deferred tax liability (4. Tax is payable at 20 percent on the first Php500.000 (12 mos. deferred tax assets and liabilities are measured using the average rates that are expected to apply the taxable profit (tax loss) of the periods in which the temporary differences are expected to reverse.000/550.000 200. 2015. What amount should the entity recognize for the deferred tax liability relating to the interest receivable? ANSWER: Php836 PAS 12 Income Taxes provides that when different tax rates apply to different levels of taxable income.000 for interest receivable that will be taxed when the cash is received in 2016.000 x 20. the entity expects to earn taxable profit of Php550.000 .000 x 30%) Php115. In 2015. Difficult Question No.000 Capital Loss (capital asset held for 24 months) P100. × P500/mo). 4 On December 31.000 x 20% + 50. the entity earned taxable profit of Php450.000. 5 Jon Snow Company had the following results of operations for the taxable year 2015: Gross Income P500.000 Solution: Gross Income Business expenses P500. prior to capitalization of interest are as follows: Development property Other assets Loans 12/31/13 P 6. 2013 and December 31. D . a manufacturing entity. 2014 a company engages in the development of a property. B . indirectly.000 . Difficult Question No. Sarah owns 45% of Vanessa (75% x 60%).000 P 6.000. Sandra controls Vanessa. an insurance entity.000) P300. In Sarah Company’s consolidated financial statements. the statements of financial position at December 31. owns 75% of the ordinary shares of Sandra Company. Sarah has a controlling financial interest in Sandra through a 75% direct ownership.200. Further. Sandra Company owns 60% of the ordinary shares of Vanessa Company. should consolidation accounting or equity method be used for Sandra Company and Vanessa Company? A .000. 6 Sarah Company. Consolidation used for both Sandra and Vanessa Equity method used for Sandra and consolidation used for Vanessa Equity method used for both Sandra and Vanessa Answer: B Sarah should use consolidation for both Sandra and Vanessa. which is expected to take five years to complete. Consolidation used for Sandra and equity method used for Vanessa. 2014.000) (50.000 Section 39(C) of the NIRC states that losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges. Sandra Company has control over Vanessa Company.000 (P100.000. an investment entity. Thus. 7 On April 1. C . Difficult Question No.000 12/31/14 P1.000 P7. Sandra owns 60% of Vanessa and Sarah owns 75% of Sandra. The intercorporate stock ownership of Sarah with respect to Vanessa is 45%.Net Income from operations Capital Gain Capital Loss Net Capital Loss Taxable Income P300.200.000 6.000 P 50. at a cost of P6M. .e. b Mora Accipendi d Solutio Indebeti . Solution: D a) Incorrect. .000 P4.000. c) Incorrect. If all the borrowing were general (i.000 1. Management are responsible for ensuring action on all internal audit observations and recommendations.000 - P2. and October 1 2014.700.000 1.200.500. then the amount of interest to be capitalized would be (Round-off to 2 decimal % for the general borrowing rate) Answer: P46. but some actions may take time to complete and it is not practical to expect that all will be resolved when an audit committee meets.000 The bank loan with effective interest rate at 6% was drawn down to match the development expenditure on April 1.000 2. b) Require all managers to confirm when they have taken action. The 5.000. . What should the audit committee do to address this situation? a) Require managers to provide detailed action plans with specific dates for addressing audit observations and recommendations.500. July 1.000. See answer “a”. July 1 – P400. c) Require the chief executive officer to report why action has not been taken.5.130 Difficult Question No.000 2.500. October 1 – P200.000. the bank loan 6% was not specific to the development) and would have been avoided but for the development. b) Incorrect. 8 Which of the following is not a source of obligation? B a Culpa Aquiliana c Negotiorum Gestio .500.000 1. Expenditure was incurred on the development as follows: April 1 – P600.5% debenture stock Bank loan at 6% per annum Bank loan at 7% per annum Shareholders’ equity P 2. 9 An audit committee is concerned that management is not addressing all internal audit observations and recommendations.000.000 P 3.5% debenture stocks were irredeemable.000. . See answer “a”. d) Require the chief audit executive to establish procedures to monitor progress. Difficult Question No. Managers do not have access to reports that profile overall performance in relation to other benchmarked organizations. She donates one-half of the stocks to her daughter Myrcella on December 31. c. Difficult Question No. 2015 when the fair market value of the stocks was P5 million. Solution: D (II and IV only) . Management has not taken corrective action to resolve past engagement observations related to inventory controls. The stocks have a current fair market value of P10 million. This responsibility should be written into its charter by the audit committee. how much did Cersei gain on the sale? a. b. 1 (EASY) 1. IV. a) b) c) d) I and II only. Employees hired for sensitive positions are not subjected to background checks. P4 million P5 million P9 million P10 million Answer: C. II and IV only. 2014 and the remaining half to her daughter Myrcella again on January 2. d. III. The chief audit executive is responsible for establishing appropriate procedures for monitoring the progress by management on all internal audit observations and recommendations. Which of the following observations by an auditor is most likely to indicate the existence of control weaknesses over safeguarding of assets? I. II. P9 million Solution: P10 million – P1 million = P9 million SEMI-FINAL ROUND Question No. A service department's location is not well suited to allow adequate service to other units.d) Correct. I and IV only. II and III only. 10 Cersei owns shares of stocks of Castle Black Corporation which she purchased several years ago for P1 million. and progress should be reported at each audit committee meeting. Assuming Myrcella subsequently sold all the shares of stocks to Ellaria Sand for P10 million. 000 P1. What is the maximum amount that Dog can collect from Ant? Answer: P 18. II.000. 4 (EASY) . Question No. This is a symptom of weak controls for achieving organizational goals and objectives. is a weakness related to safeguarding of assets.400.BEP BEP = BEP = Margin of Safety Margin of Safety = Fixed cost CM [25% * P1. but not for safeguarding of assets. Cat (17 y/o) are indebted to Dog in the amount of P 27.000. and are included in the ‘other expenses’ category. IV.000. Correct. Correct. 3 (AVERAGE) Boyz Corporation developed the following income statement that shows the expected percentage results at a sales level of P1. but not for safeguarding of assets. 2 (LW) Ant (37 y/o).000 Margin of Safety = Sales . Incorrect. Bug (27 y/o). III. Commissions is computed at 5% of sales.400. Compute for Boyz Corporation’s margin of safety.000: Sales Cost of sales Gross margin Other expenses Income 100 % 60% 40% 30% 10% The cost of sales is all variable. Answer: Php400. This is a symptom of weak controls for achieving organizational goals and objectives.000 Question No. jointly and severally.000. which related to safeguarding of assets.I.000] 35% P1.400. This is a symptom of weak controls for safeguarding of assets. Management's failure to take corrective action on past engagement observations.00 Question No.000 = P400.000 P1. Incorrect. 092.000/35% x 32%) Amount per books .000 At the beginning of January 2015.40 0 (1.560 Restated Balance (P1. c Nominal partner . 5 (AVERAGE) As of December 31.(LW) Being made liable to a third person.600) Php55. Question No. the government reduced the company tax rate from 35% to 32% effective January 2.092. The recorded tax balances represent the tax effect of future taxable amounts and future deductible amounts at 35%. Passive company has the following deferred tax items in its accounting records: Deferred tax asset Deferred tax liability Php443.040 Restated balance (P443. b Secret partner . d Dormant partner .800/35% x 32%) Amount per books Overstatement Deferred Tax Asset Php405.092.76 0 443.800 Php38.040 Overstatement Deferred Tax Liability Php998. 2015.040 (93.80 0 1. a partner by estoppel may be considered a C a Silent partner . 2014.000 ) Php93.600 Overstatement of DTA Overstatement of DTL Tax savings Php38. What amount of tax expense or savings should Passive Company recognize as a result of the change in tax rates? ANSWER: Php38. 000 700.000 and October deposit in transit for Php80.000 600. 6 (EASY) If the ending inventory is understated.800 and November service charge of Php200 Php800. Five percent of the employees are from minority groups. including October CM for note collected. Current Current Current Current ratio ratio ratio ratio is is is is overstated and EPS is understated understated and EPS is overstated overstated and EPS is overstated understated and EPS is understated Answer: D Current Ratio= Current Assets/Current Liabilities = CA Current Ratio EPS = Net Income / Outstanding ordinary shares = NI = lower = lower EPS Question No.2 00 Question No. 8 (AVERAGE) While testing a division’s compliance with company affirmative-action policies.000-800) Bank debits for November representing checks (600. D.200 October Outstanding Checks Book credits for November representing checks (620. then? A. C. . The most appropriate conclusion for the auditor to reach is that: a) Insufficient evidence exists of compliance with affirmative-action policies. No one from a minority group has been hired in the past year. c) The company’s policies cannot be audited and hence cannot be enforced.200 (599.0 00 620.000 Bank debits for November including October outstanding checks of Php170.000 What is the amount of outstanding checks for November? ANSWER: P170.8 00 599.000 Book credits for November.00020. 7 (EASY) In reconciling the Cash in bank of INA Company with the bank statement balance for the month of November 2015. an auditor found that: i.Question No. the following data are summarized: Book debits for November. Php60. including NSF of Php20. B.800) Php170. b) The division is violating the company’s policies. ii.000-200) November Outstanding Checks Php170.000 and service charge of Php800 for October Bank credits for November including CM for November for bank loan of Php100. The firm will have use of an additional P300. The increased cost of processing cash receipts is equal to P5. The bank will charge P10. b Traditio longa manu . d Traditio constitutum possessorium .000 (P100. An affirmative-action policy is clearly auditable.000 . c) Incorrect.000 × 3 days) in average funds.000 bank charge – P5. Question No. D a Traditio brevi manu . a reasonable conclusion cannot be reached. which will save the firm approximately P5.000. c Traditio clavium simbolica . Therefore. (indicate if benefit or loss) Answer: Php10. b) Incorrect.000 (P10. 9 (EASY) (LW) A constructive delivery of an immovable property subject to a sale and leaseback transaction. Question No.000 benefit The firm saves money if the interest savings is greater than the increased cost of processing cash receipts.000 in processing costs.d) With five percent of its employees from minority groups. The lockbox system will reduce the float for cash receipts by three days. The fact that no minority has been hired this year is irrelevant without knowing the total hires for the period. calculate the benefit or loss from adopting the lockbox system. the division is effectively complying.000 cost savings). This conclusion cannot be reached without knowledge of the actual company policy. 10 (AVERAGE) Management of Rapler Corporation is considering a lockbox system. Solution: A a) Correct. the interest savings is equal to P15.000 annually for the service. Assuming that the average daily receipts are equal to P100.000 (P300. d) Incorrect. The interest savings is measured by multiplying the increase in average funds by the short-term interest rate. Without knowledge of guidelines for compliance. and short-term interest costs are 5%. Dr.000 5. Rent 3.000 d.000 Cr.300.000 Answer: A The expense incurred will be recorded on the agency’s books.000 for rent. Cash 3. 12 (AVERAGE) The memorandum records of Smile Inc.000 750. Davao Agency 3.× 5%).000.000 respectively. for its defined benefit plan show the following balances: Plant asset.000 c. 11 (EASY) Happy. record in its books for the payment of rent? a. Determine the amount recognized in profit or loss in accordance with PAS 19 Employee Benefits.000 2. Question No. Entries will be recorded only in the home office’s books upon establishment and replenishment of the agency’s working funds. to the fund as well as the non-transferable FVPL issued by Smile Inc.070. 1/1/2015 2015 Information: Current service cost Market yields on government bonds at year-end Contributions made Benefits paid Past service cost as a result of plan amendment Plan asset.000 8. The first payment from the fund is P3. Dr.000. Davao Agency 3. 12/31/2015 Defined benefit obligation.200.000 is established on an imprest basis.000 Cr. and held by the fund amounting to Php700. opens a sales agency in Davao City..000 The fair value of the plan asset at year-end includes the unpaid contributions due from Smile Inc. and the overall benefit is equal to P10. ANSWER: Php3. 1/1/2015 Defined benefit obligation.000 8.000).000 and Php300. and a working fund for P20. Answer (b) is incorrect because it only considers the bank charge.000 10% Php1.000 Current service cost Php750.350. Inc. Which of the following entry should the Happy Inc.000 – P5. Working Fund 3. Cash 3. Dr.000 480.800.000 Cr.000 (P15. Answer (a) is incorrect because it ignores the interest savings. 12/31/2015 Php5.00 0 . No entry b. Question No. presentation. which of the following will most likely to happen to the firm’s profitability? A.000 45.000) P76.0005.500 Question No.000) Stockholders’ equity Total assets Loss on realization of assets Administrative expenses Payment to unsecured liabilities with priority New capital P100.000 Php3.000+10.0 00 Question No. .000 126.000) x 10% Past service cost as a result of plan amendment Total amount recognized in profit or loss 20.200.500) (10. merger.000 36. Answer: presentation Question No.000.500 Total liabilities (90. 14 (AVERAGE) The following amounts were taken from the statement of affairs for Bagsik Company: Unsecured liabilities without priority Stockholders' equity Loss on realization of assets Estimated administrative expenses that have not been entered in the accounting records Unsecured liabilities with priority Php90. D.070. Increase Increase if earnings are positive Decrease Not be affected. 13 (LW) Identify the term that does not belong to the group: prescription.000 (45. C.000 How much is the estimated payment for the unsecured liabilities without priority? Answer: P76.000 4.300.000) (4. 15 (DIFFICULT) If everything else remains constant and a firm increases its cash conversion cycle.000 36. performance.500 10.000 2.Net interest expense (P5. B. The greater the time frame the more likely the firm will have to borrow funds and incur interest expense which reduces profitability.Answer: C Cash conversion cycle is the period from which inventory is received and processed (age of inventory. Answers (a).000. by repair or replacement. b) Focus on managers and supervisors because they can also reflect the opinions of the people in their departments. sold to outside party (age of receivable) and eventually paid (age of accounts payable). and experiences. c) Use stratified sampling where the strata are defined by marital and family status. Under the terms of the contract for sale the manufacturer undertakes to make good. needs. d) Use monetary-unit sampling according to employee salaries. Answer (c) is correct because the longer the cash conversion cycle the greater the amount of time from when a `firm pays its suppliers to the time it ultimately collects receivables. This approach would produce a disproportionate number of highly paid employees who may not have the same needs as lower-paid employees. Question No. it is probable that there will be some claims under the warranties. Solution: C a) Incorrect. Sales of Php10. On the basis of experience. manufacturing defects that become apparent within one year from the date of sale. b) Incorrect. and salaried or hourly status. At December 31. The best approach to selecting a sample would be to: a) Focus on people who are likely to respond so that a larger sample can be obtained. 17 (DIFFICULT) A manufacturer gives warranties at the time of sale to purchasers of its product. age. d) Incorrect. c) Correct.000 were made evenly throughout 2015. and (d) are incorrect because the incurrence of interest will reduce profitability. Managers and supervisors often do not have the same needs and perceptions as their subordinates and also may misperceive their views. (b). Because different employees probably have different situations. stratified sampling would best ensure that a representative sample would result. 2015 the expenditures for warranty repairs and replacements for the product sold in 2015 are expected to be made 50 . This convenience sample is likely to emphasize people with lots of available time at the expense of key employees who are too busy with company work to respond. Question No. 16 (AVERAGE) An auditor is conducting a survey of perceptions and beliefs of employees concerning an organization’s health-care plan. 20 0 .25 percent for 2016.000 105. 3 percent of products sold require minor repairs costing 10 percent of sales price.9524) Php30. the entity recognizes a warranty provision measured at: ANSWER: Php106.000 180.20 0 16.000 Expected cash flow: Minor repairs P10.000. Furthermore. Escalera Company incurred the following costs for the manufacture of 200 units of a novelty gadget: Original cost accumulation: Direct materials Direct labor Factory overhead (150% of direct labor) Total Direct costs of ten reworked units: P13. 18 (AVERAGE) For Job Order No. 369.300 x 0.000 24. There is no reason to believe future warranty claims will be different from its experience.9524 Php106.000 111. Experience indicates that 95 percent of products require no warranty repairs.300 0. 2016. Assume for simplicity that all the 2016 outflows of economic benefits related to the warranty repairs and replacements take place on June 30.000 x 50%) Risk adjusted amount (105.000 210. and 2 percent of products sold require major repairs and replacement costing 90 percent of sales price. an appropriate risk adjustment factor to reflect uncertainties in the cash flow estimates is an increment of 6 percent.000 x 106%) PV factor [1/(1+0. 2015 the discount rate for expected cash flows is 10.percent in 2015 and 50 percent in 2016. On December 31. 2015. At December 31.1025)^(6/12)] Warranty Provision (111.000.000 P53.000 Question No.000 x (3% x 10%) Major repairs and replacement P10.000 x (2% x 90%) Total To be paid in 2016 (210. 2012. the balance of Roberts’ interest was paid in cash.000.000 At the beginning of 2015.000.200 2.000 2.200 The rework cost was attributable to exacting specifications required by the job and was charged to the specific order.500 .000 Php6. agreeing to distribute profits and losses in the ratio of original capitals.200 4.000 and P125.000 150. Since the books for the partnership had never been audited.000 3. and Roberts formed a partnership on January 1.000) Drawings Osman Caine Php150. End of 2012 Understatement of accrued expenses Understatement of accrued Php4. the partners agreed to an audit in arriving at the settlement amount. 369 is: Answer: P316 Total Cost before Rework Direct cost of Rework DM DL FOH (3. The units cost of Job Order No. Roberts was allowed to take certain furniture and was charged P15.200 P5. Original investments were P625.000 (105.000. The following items were revealed in the course of the audit.000 52.000 52.000 3. Osman. In withdrawing.000 185.000 Php78. Earnings of the firm and drawings by each partner for the period 2012-2014 follows: 2012 2013 2014 Net income (loss) Php440.000 1. 19 (DIFFICULT) Caine.000 78.200x150%) Total Cost Divide by: Number of units Unit cost P53.000 Roberts Php52. P250.200 200 P316 Question No.500 End of End of 2014 2013 Php5.500 1.Direct materials Direct labor Total P2.800 63. Caine and Osman agreed to permit Roberts to withdraw from the partnership.000 52.000 respectively.000 100. although the book value was P45. 000+185.250 Question No. c) Superior analytical skills that would facilitate the identification of computer abuse. b) Correct.000 12. In conducting an investigation.000-105.50% Fair value of the furniture Cash received by Roberts from the partnership P520.000) P11.000 (156.000 x 3) Share on the impairment of the furniture (45.500 2.000) 488. the primary reason that the CAE chose to engage a forensic information systems auditor rather than using the organization’s information systems auditor is that a forensic information systems auditor would possess: a) Knowledge of the computing system that would enable a more comprehensive assessment of the computer use and abuse.500-20.000 How much must Roberts received from the partnership? Answer: P11.500+1.000 20. A forensic auditor would not necessarily have analytical or organizational skills that are superior to those of the organization’s auditor.00 0 (32. Although a forensic auditor may possess the other attributes listed. b) Knowledge of what constitutes evidence acceptable in a court of law.000-1.000 1. See answer “c”. The organization’s information systems auditor would probably have more knowledge of the organization’s computing systems. The distinguishing characteristic of forensic auditing is the knowledge needed to testify as an expert witness in a court of law. c) Incorrect.revenue Overstatement of inventories Understatement of depreciation expense on assets still held 15. the organization’s information systems auditor may also possess these skills or knowledge elements.750) (15.500 3. .000) Adjusted total net income Multiplied by the P/L percentage Share in net income Original investment Total withdrawal (52. 20 (AVERAGE) A chief audit executive (CAE) suspects that several employees have used desktop computers for personal gain.250 Total income (440.00 0) (3. d) Incorrect.500-2. Solution: B a) Incorrect.50% 61.500-3.00015.000) x 12.000 125.000 20.000) Adjustment (-6. d) Superior documentation and organization skills that would facilitate in the presentation of findings to senior management and the board. B . when raising chickens or growing cereal crops). d.000 and current liabilities of P2.000 P2.000 P3. Agriculture to be separately disclosed when there is a production cycle of more than one year for a biological asset? A . D . the amount of change in fair value less costs to sell included in profit or loss due to physical changes and due to price changes. by group or otherwise.000 on its statement of financial position as of December . as amended Question No.Question No.500. 21 (EASY) Which of the following is encouraged by PAS 41. In such cases. Separate disclosure of physical and price changes is useful in appraising current period performance and future prospects. P1. C .000. 22 (EASY) On estate taxation. b.900. Physical change only Price change only Total change in value Physical change and price change Answer: D Paragraph 51 of PAS 41 Agriculture states that the fair value less costs to sell of a biological asset can change due to both physical change and price change in the market.000 P2. 23 (EASY) WIGGLE Company reported current assets of P3. an entity is encouraged to disclose. This information is generally less useful when the production cycle is less than one year (for example. a statement duly certified by a CPA is necessary if the estate tax return shows a gross value exceeding P__________ a. Question No. c.000.000. particularly when there is a production cycle of more than one year.000 ANSWER: B BASIS: Section 90(A)(3) of the Tax Code.500. Goods held on consignment from Jason Company were included in WIGGLE’s December 31.000 were shipped FOB destination by a supplier on December 28. d. 2014. 2014. b. On December 31. 25 (EASY) A company has six million ordinary shares in issue at the beginning of Year 1. physical count of inventory at P130. but the goods were not included in WIGGLE’s 2014 physical count of inventory because they were not received until January 2. D a Donations between spouses during marriage are void. Goods purchased costing P220. 2015. The following items may have been recorded incorrectly. but the goods were not included in WIGGLE’s physical count of inventory because they were not received until January 4. accepted or endorsed when overdue is considered to be payable on demand. Goods are still unsold and were included in the physical count as of the reporting date. WIGGLE received and recorded the invoice on December 29. insolvency of the consignor results in the extinguishment of the agency. What is the working capital based on WIGGLE’s statement of financial position? Answer: P1. c.31. 2014. at a price of 30. The company uses the periodic inventory system. 2014.000 Question No. 2014. Consignment of goods is essentially an agency contract. WIGGLE purchased and received goods for P750. a real mortgage must be registered and accompanied by an affidavit of good faith to take effect against third persons. Immediately prior to the issue.000. Goods purchased costing P200.000 were shipped FOB shipping point by a vendor on December 26. persons “living-in” without the benefit of a legal marriage and persons b .900. At the very end of the third quarter of Year 2 it announces a rights issue whereby all existing shareholders will be entitled to buy one share for every four they hold. 2014. c . the share price was 50. this rule applies to . a. A pledge must be in a public instrument showing a description of the thing pledged and the date of the pledge to bind third persons. The invoice was recorded and paid January 2014. 24 (AVERAGE) (LW) Determine the false statement. Question No. 2 and 3 . guilty of adultery or concubinage. 2013. The profits for year 1. WIGGLE received and recorded the invoice on December 31. d . Goods were shipped FOB seller.000. 2015. A conditional promise to pay renders an instrument to be non-negotiable while a negotiable instrument issued. paid annual leave and paid sick leave. Question No. including long-service leave or sabbatical leave. . d) termination benefits. C .00 percent (%) of net revenue for taxpayers engaged in sale of services. 0. The rights were exercised immediately upon issuance. 27 (DIFFICULT) What is the ceiling on entertainment. What is the (restated) basic earnings per share for year 2? Answer: P33.were 225 million.50 percent (%) of net sales taxpayers engaged in sale of goods or properties. Which of the following would not be considered "compensation" for this purpose? A . respectively. compensation includes: a) short-term employee benefits. b) post-employment benefits such as pensions. or 1. B . c) other long-term employee benefits. jubilee or other long-service benefits.99 Question No. post-employment life insurance and post-employment medical care. 26 (EASY) PAS 24 requires disclosure of compensation of key management personnel. profitsharing and bonuses (if payable within twelve months of the end of the period) and non-monetary benefits (such as medical care. cars and free or subsidised goods or services) for current employees. including exercise of profession and use or lease of properties. amusement and recreation (EAR) expense? a. Short-term benefits Share-based payments Termination benefits Reimbursement of out-of-pocket expenses Answer: D As enumerated in PAS 24. housing. bonuses and deferred compensation. if they are not payable wholly within twelve months after the end of the period. D . long-term disability benefits and. profit-sharing. other retirement benefits. Related Party Disclosures paragraph 9. salaries and social security contributions. such as wages. and e) share-based payment. Reimbursement of out-of-pocket expenses is not included. 230 million and 245 million. Amusement. in an amount equivalent to the actual entertainment. amusement and recreation expense paid or incurred within the taxable year by the taxpayer.50 percent (%) of net revenue for taxpayers engaged in sale of goods or properties. 28 (EASY) The use of an analytical review to verify the correctness of various operating expenses would not be a preferred approach if: a) An auditor notes strong indicators of a specific fraud involving these accounts. d) Operating expenses vary in relation to other operating expenses. as defined in Section 2 of these Regulations. a more directed audit approach would be appropriate. or non-recurring transactions during the year. Answer: A Section 5 of Revenue Regulations No. excluding exercise of profession and use or lease of properties. — There shall be allowed a deduction from gross income for entertainment.50 percent (%) of net sales (i.. including exercise of profession and use or lease of properties. Relatively stable operating data is a good scenario for using analytical review.e. .. or unusual transactions occurred. amusement and recreation expense. 1. Ceiling on Entertainment. or 1.50 percent (%) of net sales for taxpayers engaged in sale of goods or properties. or 0.00 percent (%) of net revenue for taxpayers engaged in sale of services. Analytical review only needs to have accounts related to other accounts or other independent data.b. including exercise of profession and use or lease of properties.e.00 percent (%) of net revenue (i. d. and Recreation Expense. but in no case shall such deduction exceed 0. c) Incorrect. b) Incorrect. 0. nonrecurring. including exercise of profession and use or lease of properties. 0.50 percent (%) of net revenue for taxpayers engaged in sale of services. Analytical review would be useful in identifying whether large. gross revenue less discounts) for taxpayers engaged in sale of services. c) An auditor would like to identify large. c.00 percent (%) of net sales for taxpayers engaged in sale of services. or 1. It does not require that they be related to revenue. 10-2002 provides the ceiling on entertainment. or 1. gross sales less sales returns/allowances and sales discounts) for taxpayers engaged in sale of goods or properties.00 percent (%) of net sales taxpayers engaged in sale of goods or properties. If the auditor already suspects fraud. b) Operations are relatively stable and have not changed much over the past year.” Question No. but not in relation to revenue. d) Incorrect. unusual. amusement and recreation (EAR) expense: “SECTION 5. Solution: A a) Correct. 30 (EASY) In which of the following will an entity not record impairment loss? (choose one or more) Answer: Scenarios 1. 2015. 31 (AVERAGE) ABC Company has a building that it occupies as office space. The entity adopts the calendar year reporting. 29 (EASY) On January 1. Answer: October 1. the bonds were quoted at 104. Applied Co. 2 and 4 only Question No.Question No. 2014. prepares and publishes quarterly reports in accordance with PAS 34 – Interim Financial Reporting as required by SEC. ABC Co. Assume that Applied Co. It was ascertained that the investment in bonds at amortized cost should be reclassified to held for trading securities on reclassification date. Applied Co. On October 1 to December 31. P1M bonds for P951. early adopted PFRS 9 – Financial Instruments last 2013. 2015 Question No. 2015. changed its business model. 2014. Determine the reclassification date. Consequently. the building is carried in ABC Company’s books from costs to . On January 1. acquired 10%. The yield rate on the bonds is 12%. In August 1. 2016. The principal is due on January 1. ABC Company decided to lease out the building to third party. the bonds were quoted at 103.963. 2017 but interest is due annually starting December 31. During the year. H lends P9 million to the associate. the revaluation surplus included in equity may be transferred to retained earnings. (b) any resulting increase in the carrying amount is treated as follows: (i) to the extent that the increase reverses a previous impairment loss for that property. The transfer from revaluation surplus to retained earnings is not made through profit or loss. the decrease is recognised in other comprehensive income and reduces the revaluation surplus within equity. Investment Property TRANSFERS Up to the date when an owner-occupied property becomes an investment property carried at fair value. the increase is recognized in profit or loss. The increase is recognized directly to profit or loss. to the extent that an amount is included in revaluation surplus for that property. How should ABC Company account for the resulting increase in carrying amount of the building? A . However. H's loan . None of the above. Answer: B Paragraph 62 of PAS 40.fair value. D . The entity treats any difference at that date between the carrying amount of the property in accordance with PAS 16 and its fair value in the same way as a revaluation in accordance with PAS 16. entity A. C . 32 (AVERAGE) At the beginning of the year entity H invests P5 million to acquire a 30% equity interest in an associate. Question No. The amount recognized in profit or loss does not exceed the amount needed to restore the carrying amount to the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized. if no previous impairment has been recorded. In addition. an entity depreciates the property and recognizes any impairment losses that have occurred. In other words: (a) any resulting decrease in the carrying amount of the property is recognized in profit or loss. (ii) any remaining part of the increase is recognized in other comprehensive income and increases the revaluation surplus within equity. B . On subsequent disposal of the investment property. The increase is recognized in other comprehensive income to the extent that the increase reverses a previous impairment loss. but does not provide any guarantees or commit itself to provide further funding. The increase is recognized as part of other comprehensive income or revaluation surplus within equity. 000 500.000 175.000 45.000 100.000 240.500 200.000 537.000 62.000 P1. 2014? .000 200. How much is the net income of the home office and the branch (own books and in the home office’s books) for the year ended December 31.00 0 P 90.000 300.to A is considered part of the net investment in the associate. P8million Question No. 33 (DIFFICULT) Summary adjusted trial balance for the home office and branch of TJ Corporation at December 31. The branch inventory is at transfer prices. 2014 Branch Purchases Shipments from home office Expenses Dividends Total debits Credits: Other liabilities Capital stock Retained earnings Home office Unrealized profit in branch inventory / loading Sales Shipments to branch Branch profit Total credits P530.000 P 500.000 50. Determine the equity interest in the associate and the loan carrying value.000 120. 2. Inventories at December 31.000 100.00 0 Branch P165.000 _______ P 500.000 Additional information: 1.000 for the branch.000 500. Assume the associate generated a P20 million loss during the year. The home office ships merchandise to its branch at 120% of home office cost.000 10. 2014 are P70.500 P1. 2014 are as follows: Home office Debits: Other assets Inventories. January 1.500.000 for the home office and P60. Answer: P-0.000 50.500.000 P 25.. 000+240.500 Question No. should consolidation accounting or equity method be used for Sandra Company and Vanessa Company? A . Sandra controls Vanessa.000 x 20%/120%) Net income. Sarah has a controlling financial interest in Sandra through a 75% direct ownership.500 P62.000-70.500 Home office: Sales Cost of sales (50. In Sarah Company’s consolidated financial statements. 34 (DIFFICULT) Sarah Company. D . C .000 37. B .000+500. per home office’s books P537.00 0) (50. The intercorporate stock ownership of Sarah with respect to Vanessa is 45%. Consolidation used for both Sandra and Vanessa Equity method used for Sandra and consolidation used for Vanessa Equity method used for both Sandra and Vanessa Answer: B Sarah should use consolidation for both Sandra and Vanessa.500.50 0 P300. Further. Thus. Sandra Company owns 60% of the ordinary shares of Vanessa Company.000) 25.50 0 (280. Consolidation used for Sandra and equity method used for Vanessa. per branch’s books Realized profit (225. .000-60. Sarah owns 45% of Vanessa (75% x 60%). a manufacturing entity.000) Expenses Net income Branch Sales Cost of sales (45.00 0 (225.000-200.00 0) (120. Sandra Company has control over Vanessa Company. owns 75% of the ordinary shares of Sandra Company. an insurance entity.000) Expenses Net income.Answer: P137. P62. an investment entity. indirectly. Sandra owns 60% of Vanessa and Sarah owns 75% of Sandra.00 0) P137. 000 Family home 1. if the trailing 12 months' earnings in two years' time is greater than P2 million – 3 × 12 month earnings will be paid. Eddard Stark.000 How much are the ordinary and special deductions from the gross estate. as follows: P0.500. determine the amount to be discounted at the date of acquisition to determine its fair value. At the date of acquisition.000 Funeral expenses 300. a resident citizen. died during the year leaving the following: Gross estate P 5. the possible twelve-month earnings of Entity H in two years' time are determined to be.000 Standard deduction 1.000.000 Claims against the estate 200.8 million – 40% P1. if the trailing 12 months' earnings in two years' time are between P1 million and P2 million – 2 × 12 month earnings will be paid. respectively? .5 million – 20% Applying IFRS 13 – Fair Value Measurement.Question No. 36 (DIFFICULT) Mr. as follows: if the 12 month earnings in two years' time (also referred to as the trailing 12 months) are P1 million or less – nothing will be paid.000 Taxes 25.000 Amounts receivable under Republic Act 4917 20.000 Medical expenses 600.7 million Question No. Entity G agrees to pay an additional amount of consideration to the seller in the future.000 Judicial expenses 500. Answer: P2.000 Losses 15.000 Net share of the surviving spouse in the conjugal/community estate 800. 35 (AVERAGE) Entity G acquires Entity H and as part of the arrangement.000 Vanishing deduction 30.000.5 million – 40% P2. 380 d.840).650.000 and and and and P2. Due to recent flooding.000 P2.000 P990.650. 37 (LW) A newly organized corporation issues 10. P 255.000 Claims against the estate 200. P 288.000 ANSWER: A Solution: Ordinary Special Family home (Maximum amount) P 1.000 c. How much would be the depreciation expense that can be claimed as deductible expense in CY 2014 if the equipment has useful life of 4 years? a.000 P 2. P940.520 (inclusive of VAT of P 123.340 e. d.550.000. P 259.000 P990.000 Amounts receivable under Republic Act 4917 20.000 Medical expenses (Maximum amount) 500. 38 (DIFFICULT) Grey Worm Company. the only record/document available related to the said purchase was an official receipt with an amount of P 1.000 Total P 940.000 P940.00.000 Funeral (Maximum amount) P 200. b. P 286.000 no-par shares with an issue price of P 50.000 Vanishing deduction 30.000 P2.000 Judicial expenses 500.000 Question No. a delivery from a VAT-registered dealer of automobiles. a VAT registered entity.420 ANSWER: A .000 P2.000 Losses 15. purchased in the beginning of CY 2014.145. P 317.a.000 Standard deduction 1. How much is the required minimum paid-in capital? Answer: P 125.960 b. c.000.000 Question No.550.550.000 Taxes 25. 142 None of the above Answer: A.000 180.00 0) .160) Output tax on sale of school supplies .000 1.000 1. c.000*12%) 67.160) (P60.000 400. a VAT-registered entity.000*0%) Output tax on sale of novelty items (160. a. (P68.000) Sale of books – Domestic Sale of novelty items – Domestic Purchases of books Purchases of school supplies and novelty items Purchase of computer (used in all transactions) P 560.000 160.000*12%) Output tax on sale of school supplies .858) P14. d.20 0 19.000 Compute for the VAT payable/(Overpayment).000 520. The following were taken from the records of the Company: Sale of school supplies – Domestic Sale of school supplies – Export (in USD 28. b.150.20 0 (138.000*12%) Total Less: Input taxes On purchases of school supplies and novelty items (1. (P68.Domestic (560. is engaged in the business of selling books.Question No.150. 39 (DIFFICULT) Riverlands Corporation.Export (560. school supplies and novelty items.120. organized in 2010. sale of books is a VAT exempt transaction.000 P3.0 million Ending inventory 1. How much is the Company’s income tax? Answer: P20.8 million Cost of goods available for sale 3.0 million 2.0 million Operating expenses 0. it is not subject to output VAT.0 million P 1.840. was engaged in a large-scale distribution of poultry products.000)] (16.2 million Beginning inventory 1. Question No.3 million The company opted to use optional standard deduction in filing its 1st quarter income tax return. the related input VAT on the purchases is not creditable.On purchase of computer [180. Furthermore. Hence.0 million 0.0 million 1.7 million General and administrative expenses 0.56 0) (68.2 million 0. 40 (DIFFICULT) Storm’s End Corporation.000/2.400.2 million P3.000*12%*(1.1 60) VAT payable/(Overpayment) Based on Section 109 (R) of the Tax Code.40 million . For the taxable year 2015.2 million Sales discounts 0.0 million Sales Less: Sales discounts Net sales Less: Cost of Sales Cost of goods available for sale Less: Ending inventory Gross income Less: OSD (40%) P3. the company reported the following result of operations: Sales P3. 000 and accumulated depreciation of P24.000 for the year ended December 31. The entity accounts for the loan at amortised cost.713 Question No. Each of the following accounts increased during 2013 (Assume that the increases in the following accounts are due to cash transactions only. 2014 it unconditionally sells the right to receive the remaining five interest payments to a bank.500 Available for sale investment 8.400 and a gain on sale of equipment of P1.60 million 30% P180.5% on December 31 annually in arrears and is to be redeemed at par on December 31. 2009 an entity invested P1 million in a loan with a par value of P1 million.700.000 Bonds payable 5. Determine the gain (loss) on derecognition of part of a financial asset. 2013 which included depreciation expense of P8.000.000 Question No.000 Income tax due (lower) P20. The loan pays interest stated at 7. Answer: P31. The equipment had an historical cost of P40. . 2018.800 Prepaid rent* 4. 43 (LW) A corporation organized for business or profit is called Civil Corporation while one which is organized for public charity is called ___________. if any. The derecognition provisions of IAS 39 (IFRS 9) are applied to the interest payments as an identifiable part of the asset.000 P20.): Patent P9. 41 (AVERAGE) Candice Company reported net income of P34.Taxable income Tax rate Tax due (OSD) MCIT (2%) P 0. the current market interest rate available to the borrower is 5%. 2013? Answer: (P100) Question No.000 *To be consumed within 12 months from the balance sheet date ** Will be subsequently held for sale What amount should be reported as net cash provided (used) by investing activities for the year ended December 31.000 Property and plant (vehicle held for rental)** 6. On January 1. 42 (AVERAGE) On January 1. On the same date. leading to the conclusion that they are required to be derecognized. P3.900.000 2. P3.052 b. and are measured as follows: Carrying amount before reclassification as held for sale Goodwill PPE (carried at revalued amount) PPE (carried at cost) Inventory Investment in equity securities Total P 1.000.000 5.000 1. 44 (DIFFICULT) An entity plans to dispose of a group of its assets (as an asset sale).000 P14. V. II.138 d. IV and VI only .. Determine the carrying amount of the PPE (carried at revalued amount) after classifying the group as held for sale.Answer: Eleemosynary Corporation NOTE: incorrect spelling shall be considered wrong.500.000.000 The entity measures the fair value less costs to sell of the disposal group as P13.597 c. I. I only b. The assets form a disposal group.000 5.835. III. Contracts with customers Sale of non-financial assets that are not an output of the entity’s ordinary activities (e. (Round off amounts in nearest peso) a.000.200.000.124.600.500. I.700.000 4. IV. PPE.000 P16. III. intangible assets) Leasing contracts Insurance contracts Financial instruments and certain other contracts Certain non-monetary exchanges Certain put options on sale and repurchase agreement Answer: I and II only If with choices a. VII.000 1. P --0-- Question No.g.880.000 4.700.500. VI and VII only c. Question No. VI. I and II only d.400. P4.000 Carrying amount as re-measured immediately before reclassification as held for sale P 1.800. 45 (DIFFICULT) What is in the scope or affected by IFRS 15? I.000 2. V. 000 to the lessor at the inception of an operating lease for which no interest is receivable. 47 (DIFFICULT) At the end of January 2013. that is the interest rate the lessor would have to pay if he borrowed P100. Answer: Rescissible Question No. 46 (DIFFICULT) A lessee is required to pay a refundable deposit of P100. 2014 applying PAS 17 – Leases and Financial instruments standards. The activity level selected for allocating overhead to the product was based on 80% of . determine the net amount recognized in lessee’s profit or loss as of December 31. The Company estimated that there is reasonable assurance that it will meet the terms of the grant. Assuming the annual lease payment is P60. The date of inception is February 1. The government imposes that the building must be used for social housing for ten years. Assuming that the buyer is aware of the fraudulent intent of the seller.651 decrease Question No. The lot is the only property of the seller who sold it to defraud a creditor.000 for a 10 year term from a third party). 2013. 48 (LW) A written contract of sale of a lot is made between two parties for P 50. 2013? (Round PV factors to 4 decimal places) Answer: P567.000. (Round PV factors to 4 decimal places) Answer: P60. The market interest rate is 5% (i. what is the amount recognized as income from the grant as of December 31. The prevailing market rate of interest for this type of loan is 8%. The Company opted to use the cost model of accounting the building with a 15-year life from the date of acquisition.050 Question No.000. The Company will classify the building as owner occupied property after the socialized housing project. a department’s 3-variance overhead standard costing system reported unfavorable spending and volume variances.. which term correctly describes that status of the contract of sale? Void.e. Voidable.Question No. The fixed lease term is 10 years. Unenforceable. Rescissible.000 3-year loan used by the Company in acquiring a building on the same date. 49 (DIFFICULT) During 2014. the city government provided SUNJI Company a zero interest P30. Applying provisions of PAS 20 – Accounting for Government Grants and Disclosures of Government Assistance.000. However. The output level variance will therefore be increased and become more unfavorable. D. this variance will not change with a change in activity level. 50 You have obtained the latest actuarial report prepared for SHOULD-BE Corp’s pension plan. but only the applied figure uses the SFR. The output level variance is computed by comparing the budgeted amount of total overhead costs for outputs achieved with the total amount of overhead applied. the output level variance is unfavorable indicating that the budgeted amount is more than the applied amount. This rate is computed using the high-low method or regression analysis. C. Both computations use SVR. Therefore. how would the reported unfavorable spending and volume variances be affected? A. 2015 actuarial report . an increase in activity level used to allocate overhead will not affect the standard variable application rate (SVR).practical capacity. An increase in the activity level used to allocate overhead to the product will lower the standard fixed application rate (SFR). Question No.variance method is When computing the standard variance. B. The formula for computing the SFR is If the denominator in this formula is raised. If 100% of practical capacity had been selected instead. In this problem. the SVR is used but the SFR is not. The diagram for the 3. the SFR is lowered. Spending Variance Increased Increased Unchanged Unchanged Volume Variance Unchanged Increased Increased Unchaged Answer: C The requirement is to determine how unfavorable spending and output level (volume) variances computed using the three-variance method would be affected if the estimated activity level were increased. When the SFR is lowered with the increase in activity level. Information about the actuarial reports are presented below: From the December 31. less cost will be applied for every unit produced. 000 410.000 3.000 345.Present value of defined benefit obligation Fair value of plan assets at end of year Current service cost for year Benefits paid in year Contributions paid in year Discount rate at end of year 12/31/201 4 3.000 12/31/201 5 3.500.000 3.5% 320.900.000 240.800.000 credit .000 4.600.000 430.000 230.000 5. Based on the above information and assumptions determine the OCI component to of the PBO to arrive at the ending balance on December 31.0% Assume contributions and benefit payments occurred evenly throughout the year. 2015: (Round of any components in the computation to the nearest thousands) Indicate if debit or credit Answer: P347.