Naqdown - Final Questions

Easy Questions No.
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. In the period paid.

B. In the period incurred.
C. At the date the royalty agreement began.
D. 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".
Diamante Motors sells locally manufactured jeeps on installments. Information presented below
relates to Diamantes operations for the last three calendar years.
2015 2014 2013

Cost of installment sales =8,765,625
P =7,700,000
P =4,950,000
P
Gross profit on installment sales 32% 30% 28%
Outstanding installment recl, Dec. 31:
From 2015 P9,728, 125
=
From 2014 3,025, 000 P8,387,500
=
From 2013 1,512,500 =4,812,500
P
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% =1,012,000
P
From 2014 (8,387,500-3,025,000)*30% 1,608,750
From 2013 (1,512,500*28%) 423,500
Total =3,044,250
P
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 Companys selling price is 140% of inventory cost, the adjusted cost of
Arrow Companys inventory at December 31, 2015 should be:
ANSWER: Php1,037,500
Unadjusted balance Php947,800

a. Goods in transit (P18,500-1,000)/140% 12,500
b. Purchased goods (P48,000+3,000) 51,000
c. Goods on consignment (36,400)/140% 26,000
Adjusted balance Php1,037,300
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.
(LW) Which of the followingterms is normally not associated with extinguishing an obligation
through the process of novation?
D a. Expromission
b. Subrogation
c. Delegacion
d. Remission
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.
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.
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-0-
Since 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.
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 P=20,000,000. Other
details follow:
2014 2015
Cost incurred during the year =3,000,000
P =15,750,000
P
Estimated costs to complete, as of December 31 12,000,000 -0-
Billing during the year 3,600,000 15,400,000
Collections during the year 2,500,000 15,500,000
The portion of the total contract price to be recognized as revenue in 2014 is
Answer: P4,000,000
Cost incurred during the year P3,000,000
=
Total estimated costs (3,000,000+12,000,000) 15,000,000
Percentage of completion 20%
Contract price 20,000,000
Revenue in 2014 =4,000,000
P
Average Question No. 1
1. The manager of a production line has the authority to order and receive replacement parts for
all machinery that require periodic maintenance. 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. The unneeded parts were never delivered. Instead, the
manager processed receiving documents and charged the parts to machinery maintenance
accounts. The payments for the undelivered parts were sent to the supplier, and the money
was divided between the manager and the family member.
Which of the following tests would best assist the auditor in deciding whether to investigate
this anonymous tip further?
a) Comparison of the current quarters maintenance expense with prior-period activity.

b) Physical inventory testing of replacement parts for existence and valuation.
c) Analysis of repair parts charged to maintenance to review the reasonableness of the
number of items replaced.
d) Review of a test sample of parts invoices for proper authorization and receipt.
Solution: C
a) Incorrect. The current quarters expense would equal the prior periods activity unless the
manager just started this fraud. The auditor has no information on how long this might have
been occurring.
b) Incorrect. Physical testing would not locate nonexistent parts that have already been
charged to maintenance.
c) Correct. An analysis of repair parts charged to maintenance would quantify the
excessive number of items and detect that abuse may be occurring.
d) Incorrect. Lack of segregation of duties allowed the fraud to occur. The manager was
authorized to process both the purchase and receipt, so the test would only verify the
fraudulent paperwork.
(LW) Under the cumulative voting system of electing directors of a 5-member board of a duly
organized corporation, a stockholder owning 100 shares is entitled to cast a total of
D a. 20 votes, distributed equally among 5 candidates that the stockholder wishes to elect
b. 100 votes, distributed equally among 5 candidates that the stockholder wishes to
elect
c. 100 votes, all casted in favor of a single candidate that the stockholder wishes to
elect
d. 500 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
The McGraw Company manufactures and sells Abriza handbags to assorted prints. Data for 2014
follows:
Selling price per piece P8.00

Variable cost per piece P2.00
Number of handbags to breakeven 25,000
Net post-tax income (35% tax rate) P5,850
In 2015, the company estimates that the selling price will be P9.50 per piece, variable cost to
manufacture will increase by 25%, and fixed costs will increase by 20%. Income tax rate of
35% will not change.
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: 27,000 units

Fixed Cost
BEP in units =
(SP per unit - VC per unit)
Fixed cost = BEP in units * (SP per unit - VC per unit)

Fixed cost = 25,000 units * (P8 - P2)
Fixed cost = P150,000
CURRENT
LAST YEAR YEAR
Contribution Margin P159,000 P189,000 Squeezed
Fixed cost (150,000) (180,000) [P150,000 *120%]
Net income before tax
[(NI after tax / 35%)] 9,000 9,000
Income tax [35% NI
before tax] (3,150) (3,150)
Net income after tax P5,850 P5,850
Contribution margin P189,000

New CM Rate P7
[(P9.5 - (P2 * 125%))]
Sales to meet last
year's net income 27,000 units
An asset is sold in three different active markets at different prices. An entity enters into
transactions in all markets and can access the price of those markets for the asset at the
measurement date.
Market A Market B Market C

Price that would be received Php26 Php25 Php23
Transaction costs in that market (3) (1) (1)
Costs to transport the asset to the
(2) (2) (2)
market
Net amount that would be received 21 22 20
Assuming none of these markets is the principal market, 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, Fair Value Measurement, 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, in the most advantageous
market for the asset.
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, after taking
into account transaction costs and transport costs. Thus, Market B is the most advantageous
market as it has the largest net amount that would be received.
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.
On January 2, 2014, Keith Urban Corporation purchased 70% of the ordinary shares of Mimi
Company for
P 4,675,000. At that date, Mimi Company had P 4,887,500 of ordinary shares outstanding
and accumulated profits of P 1,572,500. Mimis equipment with a remaining life of 5 years
had a book value of P 2,380,000 and a fair value of P 2,550,000. Mimis remaining assets had
a book value equal to their fair values. All intangible assets except goodwill are expected to
have remaining lives of 10 years. Non-controlling interest shall be measured at fair value.
The income and dividend figures for both Keith Urban and Mimi Company are as follows:
Income Dividends
Keith Urban Corporation: 2014 P 1,572,500 P 425,000
2015 1,785,000 510,000
Income Dividends
Mimi Company: 2014 P 340,000 P 55,000
2015 569,500 127,500
Keith Urbans income shown does not include any dividend income from Mimi. Keith
Urbans accumulated profits balance at the date of acquisition was P 5,958,500. Assume that
Mimi has outstanding 6% P 100 par value cumulative preference shares with an aggregate
value of P 1,000,000 that are classified as equity and are held by non-controlling interests.
What is the income attributable to parent on December 31, 2014?
Answer: P1,744,700
Kings Landing Corporation has the following sales during the month:
Sales:
Sale to private entities subject to 12% P 50,000
Sale to private entities subject to 0% 150,000
Sale of exempt goods 200,000
Total sales for the month 400,000
The following input taxes were passed on by its VAT suppliers:
Input tax:
Input tax on taxable goods P5,000
Input tax on zero-rated sales 3,000
Input tax on sale of exempt goods 2,000
Input tax on depreciable capital goods
not attributable to any specific activity
(pertains to monthly amortization for 60 months) 20,000
How much is the creditable input tax for the month?
a. P21,750
b. P10,500
c. P32,000
d. P18,000
ANSWER: D
SOLUTION:
Input tax on sale subject to 12% P5,000
Input tax on zero-rated sale 3,000
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
200,000 X P20,000 10,000
400,000
Total creditable input tax for the month P18,000
BASIS: Section 4.110-4 of RR No. 16-05, as amended.
Which statement is incorrect?
A. To assess whether an internally generated intangible asset meets the criteria for recognition,
an entity classifies the generation of the asset into a research phase and a development phase.
B. The cost of an internally generated asset comprises all directly attributable costs necessary to
create, produce and prepare the asset for its intended use.
C. Internally generated brands, mastheads, publishing titles, customer lists and items similar in
substance shall be recognized as intangible assets.
D. Internally generated goodwill shall not be recognized as an intangible asset.
Answer: C
PAS 38, Intangible Assets paragraph 63 states that internally generated brands, mastheads,
publishing titles, customer lists and items similar in substance shall not be recognized as
intangible assets.
Spouses Ramsay and Sansa sold their family home, a capital asset for P10,000,000. It was acquired
in 1980 at P3,000,000. The fair market value as determined by the BIR is P12,000,000 but the fair
market shown in the schedule of values of the City Assessor is P11,000,000. Later, the spouses
utilized P8,000,000 for the acquisition of their new family home. The capital gains tax due is
a. P720,000
b. P576,000
c. P144,000
d. P120,000
ANSWER: C
Solution:
(12,000,000 x 6%) x (2,000,000/10,000,000) = P144,000
The following are types of hedging relationships except?
A. Fair Value Hedge

B. Cash Flow Hedge
C. Hedge of a Net Investment in a Foreign Operation
D. Hedge of Foreign Currency Risk of a Firm Commitment
Answer: D
PAS 39, Financial Instruments: Recognition and Measurement, 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, or an identified portion of such an
asset, liability or firm commitment, that is attributable to a particular risk and could
affect profit or loss.
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.
c) hedge of a net investment in a foreign operation as defined in PAS 21.
A race track bettor won on the following bets:
On double, a bet of P200 and dividend of P100 per P10 ticket

On winner take all, a bet of P500 and a dividend of P700 per P50 ticket
On forecast, a bet of P1,000 and dividend of P150 per P50 ticket
The total percentage tax due from the winnings is

a. P2,060
b. P1,030
c. P802
d. P412
ANSWER: C
Solution:
On double {[(20010)x100] 200} x 4% P 72
On winner take all {[(50050)x700] 500} x 10% 650
On forecast {[(1,00050)x150] 1,000} x 4% 80
Total percentage tax due P 802
Difficult Question No. 1
What computer-assisted audit technique would an auditor use to identify a fictitious or terminated
employee?
a) Parallel simulation of payroll calculations.
b) Exception testing for payroll deductions.
c) Recalculations of net pay.
d) Tagging and tracing of payroll tax-rate changes.
Solution: B
a) Incorrect. In a parallel simulation, data that were processed by the engagement clients
system are reprocessed through the auditors program to determine if the output obtained
matches the output generated by the clients system. This technique might identify
problems with the clients processing but would not identify a fictitious or terminated
employee.
b) Correct. This type of computer-assisted audit technique (CAAT) program can identify
employees who have no deductions. This is important because fictitious or
terminated employees will generally not have any deductions.
c) Incorrect. A CAAT program can recalculate amounts such as gross pay, net pay, taxes and
other deductions, and accumulated or used leave times. These recalculations can help
determine if the payroll program is operating correctly or if employee files have been
altered, but would not identify a fictitious or terminated employee.
d) Incorrect. In this type of CAAT program, certain actual transactions are tagged, and as they
proceed through the system, a data file is created that traces the processing through the
system and permits an auditor to subsequently review that processing. This would not,
however, identify a fictitious or terminated employee.
Statement I: A corporation may be a partner in a partnership.

Statement II: A corporation may be a stockholder of another corporation.
Statement III: A limited partner may contribute money to a partnership but not services.
A a. Only statement I is false c. Only statement III is false
b. Only statement II is true d. All of the statements are true
During 2014, Diana Corp. experienced the following power outages:
Number of outages Number of

per month months
0 3
1 2
2 4
3 3
12
Each power outage results in an out-of-pocket costs of P400. For P500 per month, 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: Php1,600 or Php1,600 savings
In 2014 Diana incurred the following costs due to power outages:
Number of outages per

month Number of months Number of outages
0 x 3 0
1 x 2 2
2 x 4 8
3 x 3 9
12 19
19 outages x P 400/outage = P7,600
The cost of leasing an auxiliary generator is only P6,000 (12 mos. P500/mo). Therefore, Diana
would be expected to save P1,600 (P7,600 P6,000) in 2015 by leasing the generator.
On December 31, 2015, an entity has an asset of Php4,000 for interest receivable that will be taxed
when the cash is received in 2016. Tax is payable at 20 percent on the first Php500,000 of taxable
profit earned and 30 percent on any remainder. In 2015, the entity earned taxable profit of
Php450,000. In 2016, the entity expects to earn taxable profit of Php550,000. 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, 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.
Expected tax to be paid in 2016
(500,000 x 20% + 50,000 x 30%) Php115,000
Expected average tax rate

(115,000/550,000) 20.91%
Deferred tax liability

(4,000 x 20.91%) Php836
Jon Snow Company had the following results of operations for the taxable year 2015:
Gross Income P500,000

Business expenses P200,000
Capital Gain (capital asset held for one(1) year) P 50,000
Capital Loss (capital asset held for 24 months) P100,000
How much is the taxable income of John Snow Company for the year 2015?
Answer: P300,000
Solution:
Gross Income P500,000
Business expenses 200,000
Net Income from operations P300,000
Capital Gain P 50,000
Capital Loss (P100,000)
Net Capital Loss (50,000) -
Taxable Income P300,000
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.
Sarah Company, a manufacturing entity, owns 75% of the ordinary shares of Sandra Company, an
investment entity. Sandra Company owns 60% of the ordinary shares of Vanessa Company, an
insurance entity. Sandra Company has control over Vanessa Company. In Sarah Companys
consolidated financial statements, should consolidation accounting or equity method be used for
Sandra Company and Vanessa Company?
A. Consolidation used for Sandra and equity method used for Vanessa.
B. Consolidation used for both Sandra and Vanessa
C. Equity method used for Sandra and consolidation used for Vanessa
D. Equity method used for both Sandra and Vanessa
Answer: B
Sarah should use consolidation for both Sandra and Vanessa. Sarah has a controlling financial
interest in Sandra through a 75% direct ownership.
The intercorporate stock ownership of Sarah with respect to Vanessa is 45%. Sandra owns
60% of Vanessa and Sarah owns 75% of Sandra. Thus, indirectly, Sarah owns 45% of Vanessa
(75% x 60%). Further, Sandra controls Vanessa.
On April 1, 2014 a company engages in the development of a property, which is expected to take
five years to complete, at a cost of P6M. the statements of financial position at December 31, 2013
and December 31, 2014, prior to capitalization of interest are as follows:
12/31/13 12/31/14
Development property P - P1,200,000
Other assets 6,000,000 6,000,000
P 6,000,000 P7,200,000
Loans
5.5% debenture stock P 2,500,000 P2,500,000
Bank loan at 6% per annum - 1,200,000
Bank loan at 7% per annum 1,000,000 1,000,000
P 3,000,000 P4,700,000
Shareholders equity 2,500,000 2,500,000
The bank loan with effective interest rate at 6% was drawn down to match the development
expenditure on April 1, July 1, and October 1 2014. The 5.5% debenture stocks were
irredeemable. Expenditure was incurred on the development as follows: April 1 P600,000;
July 1 P400,000; October 1 P200,000. If all the borrowing were general (i.e., the bank
loan 6% was not specific to the development) and would have been avoided but for the
development, then the amount of interest to be capitalized would be
(Round-off to 2 decimal % for the general borrowing rate)
Answer: P46,130
Which of the following is not a source of obligation?

B a. Culpa Aquiliana c. Negotiorum Gestio
b. Mora Accipendi d. Solutio Indebeti
An audit committee is concerned that management is not addressing all internal audit observations
and recommendations. 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.
b) Require all managers to confirm when they have taken action.
c) Require the chief executive officer to report why action has not been taken.
d) Require the chief audit executive to establish procedures to monitor progress.
Solution: D
a) Incorrect. Management are responsible for ensuring action on all internal audit
observations and recommendations, 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.
b) Incorrect. See answer a.
c) Incorrect. See answer a.
d) Correct. The chief audit executive is responsible for establishing appropriate
procedures for monitoring the progress by management on all internal audit
observations and recommendations. This responsibility should be written into its
charter by the audit committee, and progress should be reported at each audit
committee meeting.
Cersei owns shares of stocks of Castle Black Corporation which she purchased several years ago for
P1 million. The stocks have a current fair market value of P10 million. She donates one-half of the
stocks to her daughter Myrcella on December 31, 2014 and the remaining half to her daughter
Myrcella again on January 2, 2015 when the fair market value of the stocks was P5 million.
Assuming Myrcella subsequently sold all the shares of stocks to Ellaria Sand for P10 million, how
much did Cersei gain on the sale?
a. P4 million
b. P5 million
c. P9 million
d. P10 million
Answer: C. P9 million
Solution: P10 million P1 million = P9 million

SEMI-FINAL ROUND
Question No. 1 (EASY)
1. Which of the following observations by an auditor is most likely to indicate the existence of
control weaknesses over safeguarding of assets?
I. A service department's location is not well suited to allow adequate service to other units.
II. Employees hired for sensitive positions are not subjected to background checks.
III. Managers do not have access to reports that profile overall performance in relation to other
benchmarked organizations.
IV. Management has not taken corrective action to resolve past engagement observations
related to inventory controls.
a) I and II only.
b) I and IV only.
c) II and III only.
d) II and IV only.
Solution: D (II and IV only)
I. Incorrect. This is a symptom of weak controls for achieving organizational goals and
objectives, but not for safeguarding of assets.
II. Correct. This is a symptom of weak controls for safeguarding of assets.
III. Incorrect. This is a symptom of weak controls for achieving organizational goals and
objectives, but not for safeguarding of assets.
IV. Correct. Management's failure to take corrective action on past engagement
observations, which related to safeguarding of assets, is a weakness related to
safeguarding of assets.
Question No. 2
(LW) Ant (37 y/o), Bug (27 y/o), Cat (17 y/o) are indebted to Dog in the amount of P 27,000, jointly
and severally. What is the maximum amount that Dog can collect from Ant?
Answer: P 18,000.00
Question No. 3 (AVERAGE)
Boyz Corporation developed the following income statement that shows the expected percentage
results at a sales level of P1,400,000:
Sales 100%
Cost of sales 60%
Gross margin 40%
Other expenses 30%
Income 10%
The cost of sales is all variable. Commissions is computed at 5% of sales, and are included in
the other expenses category. Compute for Boyz Corporations margin of safety.
Answer: Php400,000
Margin of Safety = Sales - BEP
Fixed cost
BEP =
CM
[25% * P1,400,000]
35%
BEP = P1,000,000
= P1,400,000 -
Margin of Safety P1,000,000
Margin of Safety = P400,000
(LW) Being made liable to a third person, a partner by estoppel may be considered a
C a. Silent partner
b. Secret partner
c. Nominal partner
d. Dormant partner
As of December 31, 2014, Passive company has the following deferred tax items in its accounting
records:
Deferred tax asset Php443,800

Deferred tax liability 1,092,000
At the beginning of January 2015, the government reduced the company tax rate from 35%
to 32% effective January 2, 2015. The recorded tax balances represent the tax effect of
future taxable amounts and future deductible amounts at 35%. What amount of tax expense
or savings should Passive Company recognize as a result of the change in tax rates?
ANSWER: Php38,040
Deferred
Tax Asset
Restated balance (P443,800/35% x Php405,760
32%)
Amount per books 443,800
Overstatement Php38,040
Deferred
Tax Liability
Restated Balance (P1,092,000/35% x Php998,400
32%)
Amount per books (1,092,000)
Overstatement Php93,600
Overstatement of DTA Php38,040

Overstatement of DTL (93,600)
Tax savings Php55,560
If the ending inventory is understated, then?

A. Current ratio is overstated and EPS is understated
B. Current ratio is understated and EPS is overstated
C. Current ratio is overstated and EPS is overstated
D. Current ratio is understated and EPS is understated
Answer: D
Current Ratio= Current Assets/Current Liabilities = CA = lower Current Ratio
EPS = Net Income / Outstanding ordinary shares = NI = lower EPS
In reconciling the Cash in bank of INA Company with the bank statement balance for the month
of November 2015, the following data are summarized:
Book debits for November, including October CM for note collected, Php800,000
Php60,000
Book credits for November, including NSF of Php20,000 and service
charge of Php800 for October 620,000
Bank credits for November including CM for November for bank loan of
Php100,000 and October deposit in transit for Php80,000 700,000
Bank debits for November including October outstanding checks of
Php170,800 and November service charge of Php200 600,000
What is the amount of outstanding checks for November?

ANSWER: P170,200
October Outstanding Checks Php170,800

Book credits for November representing checks (620,000-20,000-800) 599,200
Bank debits for November representing checks (600,000-200) (599,800)
November Outstanding Checks Php170,200
While testing a divisions compliance with company affirmative-action policies, an auditor found
that:
i. Five percent of the employees are from minority groups.
ii. No one from a minority group has been hired in the past year.
The most appropriate conclusion for the auditor to reach is that:
a) Insufficient evidence exists of compliance with affirmative-action policies.

b) The division is violating the companys policies.
c) The companys policies cannot be audited and hence cannot be enforced.
d) With five percent of its employees from minority groups, the division is effectively
complying.
Solution: A
a) Correct. Without knowledge of guidelines for compliance, a reasonable conclusion

cannot be reached.
b) Incorrect. The fact that no minority has been hired this year is irrelevant without knowing
the total hires for the period.
c) Incorrect. An affirmative-action policy is clearly auditable.
d) Incorrect. This conclusion cannot be reached without knowledge of the actual company
policy.
(LW) A constructive delivery of an immovable property subject to a sale and leaseback transaction.
D a. Traditio brevi manu
b. Traditio longa manu
c. Traditio clavium simbolica
d. Traditio constitutum possessorium
Management of Rapler Corporation is considering a lockbox system. The bank will charge P10,000
annually for the service, which will save the firm approximately P5,000 in processing costs. The
lockbox system will reduce the float for cash receipts by three days. Assuming that the average
daily receipts are equal to P100,000, and short-term interest costs are 5%, calculate the benefit or
loss from adopting the lockbox system. (indicate if benefit or loss)
Answer: Php10,000 benefit
The firm saves money if the interest savings is greater than the increased cost of processing
cash receipts. The increased cost of processing cash receipts is equal to P5,000 (P10,000
bank charge P5,000 cost savings). The interest savings is measured by multiplying the
increase in average funds by the short-term interest rate. The firm will have use of an
additional P300,000 (P100,000 3 days) in average funds. Therefore, the interest savings is
equal to P15,000 (P300,000
5%), and the overall benefit is equal to P10,000 (P15,000 P5,000). Answer (a) is
incorrect because it ignores the interest savings. Answer (b) is incorrect because it only
considers the bank charge.
Happy, Inc. opens a sales agency in Davao City, and a working fund for P
=20,000 is established on an
imprest basis. The first payment from the fund is P=3,000 for rent. Which of the following entry
should the Happy Inc. record in its books for the payment of rent?
a. No entry
b. Dr. Rent 3,000
Cr. Cash 3,000
c. Dr. Davao Agency 3,000
Cr. Cash 3,000
d. Dr. Davao Agency 3,000
Cr. Working Fund 3,000
Answer: A
The expense incurred will be recorded on the agencys books. Entries will be recorded only
in the home offices books upon establishment and replenishment of the agencys working
funds.
The memorandum records of Smile Inc. for its defined benefit plan show the following balances:
Plant asset, 1/1/2015 Php5,000,000
Defined benefit obligation, 1/1/2015 5,200,000
2015 Information:
Current service cost 750,000
Market yields on government bonds at year- 10%
end
Contributions made Php1,800,000
Benefits paid 480,000
Past service cost as a result of plan 2,300,000
amendment
Plan asset, 12/31/2015 8,000,000
Defined benefit obligation, 12/31/2015 8,350,000
The fair value of the plan asset at year-end includes the unpaid contributions due from
Smile Inc., to the fund as well as the non-transferable FVPL issued by Smile Inc. and held by
the fund amounting to Php700,000 and Php300,000 respectively. Determine the amount
recognized in profit or loss in accordance with PAS 19 Employee Benefits.
ANSWER: Php3,070,000
Current service cost Php750,000
Net interest expense (P5,200,000-5,000,000) x 20,000
10%
Past service cost as a result of plan amendment 2,300,000
Total amount recognized in profit or loss Php3,070,000
Question No. 13
(LW) Identify the term that does not belong to the group: prescription, performance, presentation,
merger.
Answer: presentation
The following amounts were taken from the statement of affairs for Bagsik Company:
Unsecured liabilities without priority Php90,000

Stockholders' equity 36,000
Loss on realization of assets 45,000
Estimated administrative expenses that have not been 4,500
entered in the accounting records
Unsecured liabilities with priority 10,000
How much is the estimated payment for the unsecured liabilities without priority?
Answer: P76,500
Total liabilities (90,000+10,000) =100,000

P
Stockholders equity 36,000
Total assets 126,000
Loss on realization of assets (45,000)
Administrative expenses (4,500)
Payment to unsecured liabilities with priority (10,000)
New capital =76,500
P
Question No. 15 (DIFFICULT)
If everything else remains constant and a firm increases its cash conversion cycle, which of the
following will most likely to happen to the firms profitability?
A. Increase
B. Increase if earnings are positive
C. Decrease
D. Not be affected.
Answer: C
Cash conversion cycle is the period from which inventory is received and processed (age of
inventory, sold to outside party (age of receivable) and eventually paid (age of accounts
payable). 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. The greater the time frame the more likely the firm will have to borrow funds
and incur interest expense which reduces profitability. Answers (a), (b), and (d) are
incorrect because the incurrence of interest will reduce profitability.
An auditor is conducting a survey of perceptions and beliefs of employees concerning an

organizations health-care plan. 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.
b) Focus on managers and supervisors because they can also reflect the opinions of the people
in their departments.
c) Use stratified sampling where the strata are defined by marital and family status, age, and
salaried or hourly status.
d) Use monetary-unit sampling according to employee salaries.
Solution: C
a) Incorrect. 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.
b) Incorrect. Managers and supervisors often do not have the same needs and perceptions as
their subordinates and also may misperceive their views.
c) Correct. Because different employees probably have different situations, needs, and
experiences, stratified sampling would best ensure that a representative sample
would result.
d) Incorrect. This approach would produce a disproportionate number of highly paid
employees who may not have the same needs as lower-paid employees.
A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of
the contract for sale the manufacturer undertakes to make good, by repair or replacement,
manufacturing defects that become apparent within one year from the date of sale. On the basis of
experience, it is probable that there will be some claims under the warranties.
Sales of Php10,000,000 were made evenly throughout 2015.
At December 31, 2015 the expenditures for warranty repairs and replacements for the
product sold in 2015 are expected to be made 50 percent in 2015 and 50 percent in 2016.
Assume for simplicity that all the 2016 outflows of economic benefits related to the
warranty repairs and replacements take place on June 30, 2016.
Experience indicates that 95 percent of products require no warranty repairs, 3 percent of

products sold require minor repairs costing 10 percent of sales price; and 2 percent of
products sold require major repairs and replacement costing 90 percent of sales price.
There is no reason to believe future warranty claims will be different from its experience.
At December 31, 2015 the discount rate for expected cash flows is 10.25 percent for 2016.
Furthermore, an appropriate risk adjustment factor to reflect uncertainties in the cash flow
estimates is an increment of 6 percent.
On December 31, 2015, the entity recognizes a warranty provision measured at:
ANSWER: Php106,000
Expected cash flow:
Minor repairs P10,000,000 x (3% x 10%) Php30,000
Major repairs and replacement
P10,000,000 x (2% x 90%) 180,000
Total 210,000
To be paid in 2016 (210,000 x 50%) 105,000
Risk adjusted amount (105,000 x 106%) 111,300

PV factor [1/(1+0.1025)^(6/12)] 0.9524
Warranty Provision (111,300 x 0.9524) Php106,000
For Job Order No. 369, Escalera Company incurred the following costs for the manufacture of 200
units of a novelty gadget:
Original cost accumulation:

Direct materials P13,200
=
Direct labor 16,000
Factory overhead (150% of direct labor) 24,000
Total =53,200
P
Direct costs of ten reworked units:
Direct materials P2,000
=
Direct labor 3,200
Total =5,200
P
The rework cost was attributable to exacting specifications required by the job and was
charged to the specific order. The units cost of Job Order No. 369 is:
Answer: P316
Total Cost before Rework =53,200
P
Direct cost of Rework
DM 2,000
DL 3,200
FOH (3,200x150%) 4,800
Total Cost 63,200
Divide by: Number of units 200
Unit cost =316
P
Caine, Osman, and Roberts formed a partnership on January 1, 2012, agreeing to distribute profits
and losses in the ratio of original capitals. Original investments were P=625,000, P =250,000 and
=125,000 respectively. Earnings of the firm and drawings by each partner for the period 2012-2014
P
follows:
Drawings
Net income (loss) Caine Osman Roberts
2012 Php440,000 Php150,000 Php78,000 Php52,000
2013 185,000 150,000 78,000 52,000
2014 (105,000) 100,000 52,000 52,000
At the beginning of 2015, Caine and Osman agreed to permit Roberts to withdraw from the
partnership. Since the books for the partnership had never been audited, the partners
agreed to an audit in arriving at the settlement amount. In withdrawing, Roberts was
allowed to take certain furniture and was charged P=15,000, although the book value was P
=
45,000; the balance of Roberts interest was paid in cash.
The following items were revealed in the course of the audit.

End of 2012 End of 2013 End of 2014
Understatement of accrued expenses Php4,000 Php5,000 Php6,500
Understatement of accrued revenue 2,500 1,000 1,500
Overstatement of inventories 15,000 20,000 20,000
Understatement of depreciation expense
on assets still held 1,500 3,500 2,000
How much must Roberts received from the partnership?
Answer: P11,250
Total income (440,000+185,000-105,000) P520,000
=
Adjustment (-6,500+1,500-20,000-1,500-3,500-2,000) (32,000)
Adjusted total net income 488,000
Multiplied by the P/L percentage 12.50%
Share in net income 61,000
Original investment 125,000
Total withdrawal (52,000 x 3) (156,000)
Share on the impairment of the furniture (45,000-15,000) x (3,750)
12.50%
Fair value of the furniture (15,000)
Cash received by Roberts from the partnership =11,250
P
A chief audit executive (CAE) suspects that several employees have used desktop computers for
personal gain. In conducting an investigation, the primary reason that the CAE chose to engage a
forensic information systems auditor rather than using the organizations 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.
b) Knowledge of what constitutes evidence acceptable in a court of law.
c) Superior analytical skills that would facilitate the identification of computer abuse.
d) Superior documentation and organization skills that would facilitate in the presentation of
findings to senior management and the board.
Solution: B
a) Incorrect. The organizations information systems auditor would probably have more
knowledge of the organizations computing systems.
b) Correct. The distinguishing characteristic of forensic auditing is the knowledge
needed to testify as an expert witness in a court of law. Although a forensic auditor
may possess the other attributes listed, the organizations information systems
auditor may also possess these skills or knowledge elements.
c) Incorrect. A forensic auditor would not necessarily have analytical or organizational skills
that are superior to those of the organizations auditor.
d) Incorrect. See answer c.
Which of the following is encouraged by PAS 41, Agriculture to be separately disclosed when there
is a production cycle of more than one year for a biological asset?
A. Physical change only

B. Price change only
C. Total change in value
D. 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. Separate
disclosure of physical and price changes is useful in appraising current period performance
and future prospects, particularly when there is a production cycle of more than one year.
In such cases, an entity is encouraged to disclose, by group or otherwise, 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. This information is generally less useful when the production cycle is
less than one year (for example, when raising chickens or growing cereal crops).
On estate taxation, a statement duly certified by a CPA is necessary if the estate tax return shows a
gross value exceeding P__________
a. P1,500,000
b. P2,000,000
c. P2,500,000
d. P3,000,000
ANSWER: B
BASIS: Section 90(A)(3) of the Tax Code, as amended
WIGGLE Company reported current assets of P3,900,000 and current liabilities of P2,000,000 on its
statement of financial position as of December 31, 2014. The following items may have been
recorded incorrectly. The company uses the periodic inventory system.
a. Goods purchased costing P220,000 were shipped FOB shipping point by a vendor on
December 26, 2014. WIGGLE received and recorded the invoice on December 29, 2014, but
the goods were not included in WIGGLEs physical count of inventory because they were not
received until January 4, 2015.
b. On December 31, 2013, WIGGLE purchased and received goods for P750,000. Goods were
shipped FOB seller. The invoice was recorded and paid January 2014. Goods are still unsold
and were included in the physical count as of the reporting date.
c. Goods purchased costing P200,000 were shipped FOB destination by a supplier on December
28, 2014. WIGGLE received and recorded the invoice on December 31, 2014, but the goods
were not included in WIGGLEs 2014 physical count of inventory because they were not
received until January 2, 2015.
d. Goods held on consignment from Jason Company were included in WIGGLEs December 31,
2014, physical count of inventory at P130,000.
What is the working capital based on WIGGLEs statement of financial position?
Answer: P1,900,000
(LW) Determine the false statement.

D a. Donations between spouses during marriage are void; this rule applies to persons
living-in without the benefit of a legal marriage and persons guilty of adultery or
concubinage.
b. A conditional promise to pay renders an instrument to be non-negotiable while a
negotiable instrument issued, accepted or endorsed when overdue is considered to
be payable on demand.
c. Consignment of goods is essentially an agency contract; insolvency of the consignor
results in the extinguishment of the agency.
d. 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; a real mortgage must be registered
and accompanied by an affidavit of good faith to take effect against third persons.
A company has six million ordinary shares in issue at the beginning of Year 1. 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, at a price of 30. Immediately prior to the issue, the share price
was 50. The profits for year 1, 2 and 3 were 225 million, 230 million and 245 million, respectively. The
rights were exercised immediately upon issuance. What is the (restated) basic earnings per share for
year 2?
Answer: P33.99
PAS 24 requires disclosure of compensation of key management personnel. Which of the following
would not be considered "compensation" for this purpose?
A. Short-term benefits
B. Share-based payments
C. Termination benefits
D. Reimbursement of out-of-pocket expenses
Answer: D
As enumerated in PAS 24, Related Party Disclosures paragraph 9, compensation includes:

a) short-term employee benefits, such as wages, salaries and social security
contributions, paid annual leave and paid sick leave, profit-sharing and bonuses (if
payable within twelve months of the end of the period) and non-monetary benefits
(such as medical care, housing, cars and free or subsidised goods or services) for
current employees;
b) post-employment benefits such as pensions, other retirement benefits, post-
employment life insurance and post-employment medical care;
c) other long-term employee benefits, including long-service leave or sabbatical leave,
jubilee or other long-service benefits, long-term disability benefits and, if they are
not payable wholly within twelve months after the end of the period, profit-sharing,
bonuses and deferred compensation;
d) termination benefits; and
e) share-based payment.
Reimbursement of out-of-pocket expenses is not included.
What is the ceiling on entertainment, amusement and recreation (EAR) expense?
a. 0.50 percent (%) of net sales taxpayers engaged in sale of goods or properties; or 1.00
percent (%) of net revenue for taxpayers engaged in sale of services, including exercise of
profession and use or lease of properties.
b. 1.00 percent (%) of net sales taxpayers engaged in sale of goods or properties; or 0.50
percent (%) of net revenue for taxpayers engaged in sale of services, including exercise of
c. 0.50 percent (%) of net sales for taxpayers engaged in sale of goods or properties; or 1.00
percent (%) of net revenue for taxpayers engaged in sale of services, excluding exercise of
d. 0.50 percent (%) of net revenue for taxpayers engaged in sale of goods or properties; or
1.00 percent (%) of net sales for taxpayers engaged in sale of services, including exercise of
Answer: A
Section 5 of Revenue Regulations No. 10-2002 provides the ceiling on entertainment, amusement and
recreation (EAR) expense:
SECTION 5. Ceiling on Entertainment, Amusement, and Recreation Expense. There shall be

allowed a deduction from gross income for entertainment, amusement and recreation expense, as
defined in Section 2 of these Regulations, in an amount equivalent to the actual entertainment,
amusement and recreation expense paid or incurred within the taxable year by the taxpayer, but in no
case shall such deduction exceed 0.50 percent (%) of net sales (i.e., gross sales less sales
returns/allowances and sales discounts) for taxpayers engaged in sale of goods or properties; or 1.00
percent (%) of net revenue (i.e., gross revenue less discounts) for taxpayers engaged in sale of services,
including exercise of profession and use or lease of properties.
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.
b) Operations are relatively stable and have not changed much over the past year.
c) An auditor would like to identify large, unusual, or non-recurring transactions during the
year.
d) Operating expenses vary in relation to other operating expenses, but not in relation to
revenue.
Solution: A
a) Correct. If the auditor already suspects fraud, a more directed audit approach would
be appropriate.
b) Incorrect. Relatively stable operating data is a good scenario for using analytical review.
c) Incorrect. Analytical review would be useful in identifying whether large, non-recurring, or
unusual transactions occurred.
d) Incorrect. Analytical review only needs to have accounts related to other accounts or other
independent data. It does not require that they be related to revenue.
On January 1, 2014, Applied Co. acquired 10%, P1M bonds for P951,963. The principal is due on
January 1, 2017 but interest is due annually starting December 31, 2014. The yield rate on the bonds is
12%. The entity adopts the calendar year reporting. Applied Co. prepares and publishes quarterly
reports in accordance with PAS 34 Interim Financial Reporting as required by SEC.
In August 1, 2015, ABC Co. changed its business model. It was ascertained that the investment in bonds
at amortized cost should be reclassified to held for trading securities on reclassification date. On
October 1 to December 31, 2015, the bonds were quoted at 103. On January 1, 2016, the bonds were
quoted at 104.
Assume that Applied Co. early adopted PFRS 9 Financial Instruments last 2013. Determine the
reclassification date.
Answer: October 1, 2015
In which of the following will an entity not record impairment loss? (choose one or more)
Answer: Scenarios 1, 2 and 4 only
ABC Company has a building that it occupies as office space. During the year, ABC Company
decided to lease out the building to third party. Consequently, the building is carried in ABC
Companys books from costs to fair value. How should ABC Company account for the resulting
increase in carrying amount of the building?
A. The increase is recognized in other comprehensive income to the extent that the increase
reverses a previous impairment loss.
B. The increase is recognized as part of other comprehensive income or revaluation surplus
within equity, if no previous impairment has been recorded.
C. The increase is recognized directly to profit or loss.
D. None of the above.
Answer: B
Paragraph 62 of PAS 40, Investment Property

TRANSFERS
Up to the date when an owner-occupied property becomes an investment property carried
at fair value, an entity depreciates the property and recognizes any impairment losses that
have occurred. 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. In other words:
(a) any resulting decrease in the carrying amount of the property is recognized in profit or
loss. However, to the extent that an amount is included in revaluation surplus for that
property, the decrease is recognised in other comprehensive income and reduces the
revaluation surplus within equity.
(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 increase is recognized in profit or loss. 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.
(ii) any remaining part of the increase is recognized in other comprehensive
income and increases the revaluation surplus within equity. On subsequent
disposal of the investment property, the revaluation surplus included in equity may be
transferred to retained earnings. The transfer from revaluation surplus to retained
earnings is not made through profit or loss.
At the beginning of the year entity H invests P5 million to acquire a 30% equity interest in an
associate, entity A. In addition, H lends P9 million to the associate, but does not provide any
guarantees or commit itself to provide further funding. H's loan to A is considered part of the net
investment in the associate. Assume the associate generated a P20 million loss during the year.
Determine the equity interest in the associate and the loan carrying value.
Answer: P-0- ; P8million
Summary adjusted trial balance for the home office and branch of TJ Corporation at December 31,
2014 are as follows:
Home office Branch

Debits:
Other assets =530,000
P =165,000
P
Inventories, January 1, 2014 50,000 45,000
Branch 200,000 -
Purchases 500,000 -
Shipments from home office - 240,000
Expenses 120,000 50,000
Dividends 100,000 -
Total debits =1,500,000
P = 500,000
P
Credits:
Other liabilities =
P 90,000 = 25,000
P
Capital stock 500,000 -
Retained earnings 100,000 -
Home office - 175,000
Unrealized profit in branch inventory /
loading 10,000 -
Sales 537,500 300,000
Shipments to branch 200,000 -
Branch profit 62,500 _______
Total credits =1,500,000
P = 500,000
P
Additional information:
1. The home office ships merchandise to its branch at 120% of home office cost.
2. Inventories at December 31, 2014 are P =70,000 for the home office and P
=60,000 for the
branch. The branch inventory is at transfer prices.
How much is the net income of the home office and the branch (own books and in the home
offices books) for the year ended December 31, 2014?
Answer: P137,500; P62,500

Home office:
Sales =537,500
P
Cost of sales (50,000+500,000-200,000-70,000) (280,000)
Expenses (120,000)
Net income =137,500
P
Branch
Sales =300,000
P
Cost of sales (45,000+240,000-60,000) (225,000)
Expenses (50,000)
Net income, per branchs books 25,000
Realized profit (225,000 x 20%/120%) 37,500
Net income, per home offices books =62,500
P
Sarah Company, a manufacturing entity, owns 75% of the ordinary shares of Sandra Company, an
investment entity. Sandra Company owns 60% of the ordinary shares of Vanessa Company, an
insurance entity. Sandra Company has control over Vanessa Company. In Sarah Companys
consolidated financial statements, should consolidation accounting or equity method be used for
Sandra Company and Vanessa Company?
A. Consolidation used for Sandra and equity method used for Vanessa.
B. Consolidation used for both Sandra and Vanessa
C. Equity method used for Sandra and consolidation used for Vanessa
D. Equity method used for both Sandra and Vanessa
Answer: B
Sarah should use consolidation for both Sandra and Vanessa. Sarah has a controlling financial
interest in Sandra through a 75% direct ownership.
The intercorporate stock ownership of Sarah with respect to Vanessa is 45%. Sandra owns
60% of Vanessa and Sarah owns 75% of Sandra. Thus, indirectly, Sarah owns 45% of Vanessa
(75% x 60%). Further, Sandra controls Vanessa.
Entity G acquires Entity H and as part of the arrangement, Entity G agrees to pay an additional amount
of consideration to the seller in the future, 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.
if the trailing 12 months' earnings in two years' time are between P1 million and P2
million 2 12 month earnings will be paid.
if the trailing 12 months' earnings in two years' time is greater than P2 million 3 12
month earnings will be paid.
At the date of acquisition, the possible twelve-month earnings of Entity H in two years' time are
determined to be, as follows:
P0.8 million 40%

P1.5 million 40%
P2.5 million 20%
Applying IFRS 13 Fair Value Measurement, determine the amount to be discounted at the date of
acquisition to determine its fair value.
Answer: P2.7 million
Mr. Eddard Stark, a resident citizen, died during the year leaving the following:
Gross estate P 5,000,000

Family home 1,500,000
Funeral expenses 300,000
Judicial expenses 500,000
Medical expenses 600,000
Claims against the estate 200,000
Taxes 25,000
Losses 15,000
Vanishing deduction 30,000
Standard deduction 1,000,000
Net share of the surviving spouse in the conjugal/community estate 800,000
Amounts receivable under Republic Act 4917 20,000
How much are the ordinary and special deductions from the gross estate, respectively?
a. P940,000 and P2,550,000

b. P940,000 and P2,650,000
c. P990,000 and P2,550,000
d. P990,000 and P2,650,000
ANSWER: A
Solution:
Ordinary Special
Family home (Maximum amount) P 1,000,000
Funeral (Maximum amount) P 200,000
Judicial expenses 500,000
Medical expenses (Maximum amount) 500,000
Claims against the estate 200,000
Taxes 25,000
Losses 15,000
Vanishing deduction 30,000
Standard deduction 1,000,000
Amounts receivable under Republic Act 4917 20,000
Total P 940,000 P 2,550,000
Question No. 37
(LW) A newly organized corporation issues 10,000 no-par shares with an issue price of P 50.00.
How much is the required minimum paid-in capital?
Answer: P 125,000
Grey Worm Company, a VAT registered entity, purchased in the beginning of CY 2014, a delivery
from a VAT-registered dealer of automobiles. Due to recent flooding, the only record/document
available related to the said purchase was an official receipt with an amount of P 1,145,520
(inclusive of VAT of P 123,840).
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. P 288,960
b. P 259,000
c. P 286,380
d. P 317,340
e. P 255,420
ANSWER: A
Amount of OR 1,145,520.00
VAT imposed by supplier of equipment (123,840.00)
Net of VAT 1,021,680.00
Divided by: Gross-up rate (100% less 1% EWT rate imposed) 99%
Acquisition cost (net of VAT) 1,032,000.00
Add: Input VAT claimable as deductible expense
Amount net of VAT 1,032,000.00
Multiply by: VAT rate 12% 123,840.00
Depreciable cost 1,155,840.00
Divided by: useful life 4
Deductible depreciation 288,960.00
Riverlands Corporation, a VAT-registered entity, is engaged in the business of selling books, school
supplies and novelty items. The following were taken from the records of the Company:
Sale of school supplies Domestic P 560,000

Sale of school supplies Export (in USD 28,000) 1,120,000
Sale of books Domestic 520,000
Sale of novelty items Domestic 160,000
Purchases of books 400,000
Purchases of school supplies and novelty items 1,150,000
Purchase of computer (used in all transactions) 180,000
Compute for the VAT payable/(Overpayment).
a. (P68,160)
b. (P60,858)
c. P14,142
d. None of the above
Answer: A. (P68,160)
Output tax on sale of school supplies - Domestic (560,000*12%) 67,200
Output tax on sale of school supplies - Export (560,000*0%) -
Output tax on sale of novelty items (160,000*12%) 19,200
Total
Less: Input taxes
On purchases of school supplies and novelty items

(1,150,000*12%) (138,000)
On purchase of computer [180,000*12%*(1,840,000/2,400,000)] (16,560)
VAT payable/(Overpayment) (68,160)
Based on Section 109 (R) of the Tax Code, sale of books is a VAT exempt transaction. Hence, it is
not subject to output VAT. Furthermore, the related input VAT on the purchases is not
creditable.
Storms End Corporation, organized in 2010, was engaged in a large-scale distribution of poultry
products. For the taxable year 2015, the company reported the following result of operations:
Sales P3.2 million

Sales discounts 0.2 million
Beginning inventory 1.8 million
Cost of goods available for sale 3.0 million
Ending inventory 1.0 million
Operating expenses 0.7 million
General and administrative expenses 0.3 million
The company opted to use optional standard deduction in filing its 1st quarter income tax
return.
How much is the Companys income tax?
Answer: P20,000
Sales P3.2 million

Less: Sales discounts 0.2 million
Net sales P3.0 million
Less: Cost of Sales
Cost of goods available for sale P3.0 million
Less: Ending inventory 1.0 million 2.0 million
Gross income P 1.0 million
Less: OSD (40%) 0.40 million
Taxable income P 0.60 million
Tax rate 30%
Tax due (OSD) P180,000
MCIT (2%) P20,000
Income tax due (lower) P20,000
Candice Company reported net income of P34,000 for the year ended December 31, 2013 which
included depreciation expense of P8,400 and a gain on sale of equipment of P1,700. The equipment
had an historical cost of P40,000 and accumulated depreciation of P24,000. Each of the following
accounts increased during 2013 (Assume that the increases in the following accounts are due to cash
transactions only.):
Patent P9,800
Prepaid rent* 4,500
Available for sale investment 8,000
Property and plant (vehicle held for rental)** 6,000
Bonds payable 5,000
*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, 2013?
Answer: (P100)

On January 1, 2009 an entity invested P1 million in a loan with a par value of P1 million. The loan pays
interest stated at 7.5% on December 31 annually in arrears and is to be redeemed at par on December
31, 2018. The entity accounts for the loan at amortised cost.
On January 1, 2014 it unconditionally sells the right to receive the remaining five interest payments to
a bank. The derecognition provisions of IAS 39 (IFRS 9) are applied to the interest payments as an
identifiable part of the asset, leading to the conclusion that they are required to be derecognized. On
the same date, the current market interest rate available to the borrower is 5%.
Determine the gain (loss) on derecognition of part of a financial asset, if any.
Answer: P31,713
Question No. 43
(LW) A corporation organized for business or profit is called Civil Corporation while one which is
organized for public charity is called ___________.
Answer: Eleemosynary Corporation
NOTE: incorrect spelling shall be considered wrong.
An entity plans to dispose of a group of its assets (as an asset sale). The assets form a disposal group,
and are measured as follows:
Carrying amount Carrying amount as

before re-measured
reclassification as immediately before
held for sale reclassification as
held for sale
Goodwill P 1,500,000 P 1,500,000
PPE (carried at revalued amount) 4,600,000 4,000,000
PPE (carried at cost) 5,700,000 5,700,000
Inventory 2,400,000 2,200,000
Investment in equity securities 1,800,000 1,500,000
Total P16,000,000 P14,900,000
The entity measures the fair value less costs to sell of the disposal group as P13,000,000.
Determine the carrying amount of the PPE (carried at revalued amount) after classifying the group as
held for sale. (Round off amounts in nearest peso)
a. P3,835,052 b. P3,880,597 c. P4,124,138 d. P --0--
What is in the scope or affected by IFRS 15?
I. Contracts with customers

II. Sale of non-financial assets that are not an output of the entitys ordinary activities (e.g.,
PPE, intangible assets)
III. Leasing contracts
IV. Insurance contracts
V. Financial instruments and certain other contracts
VI. Certain non-monetary exchanges
VII. Certain put options on sale and repurchase agreement
Answer: I and II only
If with choices
a. I only b. I and II only c. I, III, IV and VI only d. I, V, VI and

VII only
A lessee is required to pay a refundable deposit of P100,000 to the lessor at the inception of an
operating lease for which no interest is receivable. The fixed lease term is 10 years. The market
interest rate is 5% (i.e., that is the interest rate the lessor would have to pay if he borrowed P100,000
for a 10 year term from a third party). The date of inception is February 1, 2013.
Assuming the annual lease payment is P60,000, determine the net amount recognized in lessees profit
or loss as of December 31, 2014 applying PAS 17 Leases and Financial instruments standards.
(Round PV factors to 4 decimal places)
Answer: P60,651 decrease
At the end of January 2013, the city government provided SUNJI Company a zero interest P30,000,000
3-year loan used by the Company in acquiring a building on the same date. The prevailing market rate
of interest for this type of loan is 8%. The government imposes that the building must be used for
social housing for ten years. The Company estimated that there is reasonable assurance that it will
meet the terms of the grant. The Company will classify the building as owner occupied property after
the socialized housing project. The Company opted to use the cost model of accounting the building
with a 15-year life from the date of acquisition.
Applying provisions of PAS 20 Accounting for Government Grants and Disclosures of Government
Assistance, what is the amount recognized as income from the grant as of December 31, 2013?
(Round PV factors to 4 decimal places)
Answer: P567,050
Question No. 48
(LW) A written contract of sale of a lot is made between two parties for P 50,000. The lot is the only
property of the seller who sold it to defraud a creditor. Assuming that the buyer is aware of the
fraudulent intent of the seller, which term correctly describes that status of the contract of sale?
Void, Voidable, Rescissible, Unenforceable.
Answer: Rescissible
During 2014, a departments 3-variance overhead standard costing system reported unfavorable
spending and volume variances. The activity level selected for allocating overhead to the product
was based on 80% of practical capacity. If 100% of practical capacity had been selected instead,
how would the reported unfavorable spending and volume variances be affected?
Spending Variance Volume Variance

A. Increased Unchanged
B. Increased Increased
C. Unchanged Increased
D. Unchanged 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. An increase in the activity level used to allocate overhead to
the product will lower the standard fixed application rate (SFR). The formula for computing
the SFR is
If the denominator in this formula is raised, the SFR is lowered. However, an increase in
activity level used to allocate overhead will not affect the standard variable application rate
(SVR). This rate is computed using the high-low method or regression analysis. The diagram
for the 3- variance method is
When computing the standard variance, the SVR is used but the SFR is not. Therefore, this
variance will not change with a change in activity level. 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. Both computations use SVR, but only the applied
figure uses the SFR. In this problem, the output level variance is unfavorable indicating that
the budgeted amount is more than the applied amount. When the SFR is lowered with the
increase in activity level, less cost will be applied for every unit produced. The output level
variance will therefore be increased and become more unfavorable.
Question No. 50
You have obtained the latest actuarial report prepared for SHOULD-BE Corps pension plan.
Information about the actuarial reports are presented below: From the December 31, 2015 actuarial
report
12/31/2014 12/31/2015
Present value of defined benefit 3,600,000 3,500,000
obligation
Fair value of plan assets at end of year 3,900,000 3,800,000
Current service cost for year 345,000 320,000
Benefits paid in year 240,000 230,000
Contributions paid in year 430,000 410,000
Discount rate at end of year 4.5% 5.0%
Assume contributions and benefit payments occurred evenly throughout the year.
Based on the above information and assumptions determine the OCI component to of the PBO to arrive
at the ending balance on December 31, 2015: (Round of any components in the computation to the
nearest thousands) Indicate if debit or credit
Answer: P347,000 credit

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Easy Questions No.

A. In the period paid.

Easy Questions No. 2

ANSWER: B - Must be vacation leave instead of sick leave

Easy Questions No. 3

2015 2014 2013

Diamante Motors uses the installment method of accounting.

Easy Questions No. 4

Unadjusted balance Php947,800

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

Easy Questions No. 6

Easy Questions No. 7

a) Incorrect. There is no need for earlier consideration in this situation.

Easy Questions No. 8

Easy Questions No. 9

Estimated total reserves, tons Php60,000,000

Easy Questions No. 10

The portion of the total contract price to be recognized as revenue in 2014 is

a) Comparison of the current quarters maintenance expense with prior-period activity.

Average Question No. 2

Selling price per piece P8.00

Answer: 27,000 units

Fixed cost = BEP in units * (SP per unit - VC per unit)

Contribution margin P189,000

Market A Market B Market C

ANSWER: Market B and FV is Php23

Average Question No. 5

Average Question No. 6

The following input taxes were passed on by its VAT suppliers:

How much is the creditable input tax for the month?

Total creditable input tax for the month P18,000

BASIS: Section 4.110-4 of RR No. 16-05, as amended.

Average Question No. 7

Which statement is incorrect?

Average Question No. 8

The following are types of hedging relationships except?

A. Fair Value Hedge

Average Question No. 10

A race track bettor won on the following bets:

On double, a bet of P200 and dividend of P100 per P10 ticket

The total percentage tax due from the winnings is

Difficult Question No. 2

Statement I: A corporation may be a partner in a partnership.

Difficult Question No. 3

During 2014, Diana Corp. experienced the following power outages:

Number of outages Number of

Answer: Php1,600 or Php1,600 savings

In 2014 Diana incurred the following costs due to power outages:

Number of outages per

19 outages x P 400/outage = P7,600

Difficult Question No. 4

Expected average tax rate

Deferred tax liability

Gross Income P500,000

Difficult Question No. 6

Difficult Question No. 7

Shareholders equity 2,500,000 2,500,000

(Round-off to 2 decimal % for the general borrowing rate)

Difficult Question No. 8

Which of the following is not a source of obligation?