REGIONAL MID YEAR CONVENTION

MASTER OF ACCOUNTING CUP

ACADEMICS ARM
_________________________________________________________________________________________

EASY ROUND
1. Nika issued a negotiable promissory note and authorized Tiny to fill up the amount in blank up
to P50,000 only. However, Tiny filled it up to P75,000 and negotiated the note to Pia, a holder
in due course.

A. Nika is liable only to Pia up to P50,000.

B. If Nika dishonors the note, Tiny is liable to Pia for the full amount of the note.
C. If the note is presented to Nika, she is liable to Pia for P75,000.
D. Both Nika and Pia can be held liable for the full amount of the note.

2. A, B and C are partners engaged in a retail business. Their contribution is P20,000 each. D is
admitted as a new partner with a contribution of P8,000. At the time of his admission, the
partnership has an outstanding obligation to E in the amount of P80,000. In this case:
A. D is not liable to E for this obligation
B. D is liable to E for this obligation so that amounting to P68,000 will be exhausted leaving a
balance of P12,000. Only A, B and C shall be liable jointly or pro-rata, out of their
separate property.
C. D is liable to E for this obligation so that after the assets of the partnership will be
exhausted, leaving a balance of P12,000, all the partners shall be liable jointly or pro-
rata, out of their separate property.
D. Answer not given.

3. Mr. Duterte, a citizen and resident of Puerto Rico, dies during the year. Puerto Rico does not
impose transfer taxes on properties of decedent not residing therein. He left the following
properties among others:
Shares of stock, San Miguel Corporation, Manila
House and lot, Puerto Rico
Leasehold on a condominium unit, Philippines
Contract for public works, Philippines
The executor of his estate in the Philippines asked you what properties are to be included in
his Philippine gross estate. What answer will you give to him?
a. Include all the properties
b. Include contract for public works only
c. Include all properties except shares of stock and house and lot
d. Include all properties except house and lot in Puerto Rico

4. It is the start of the year and St. Tropez Co. plans to replace its old sing-along equipment.
These information are available:
Old New
Equipment cost P70,000 P120,000
Current salvage value 10,000 -
Salvage value, end of useful life 2,000 16,000
Annual operating costs 56,000 38,000
Accumulated depreciation 55,300 -
Estimated useful life 10 years 10 years
The company’s income tax rate is 35% and its cost of capital is 12%. What is the present value of
all the relevant cash flows at time zero?
a. (P54,000) b. (P110,000) c. (P120,000) d. (P124,700)

5. Palito, CPA, has just accepted an engagement to audit the financial statements of Crocodile,
Inc. for the year ending December 31, 2015. After obtaining an understanding of the client’s
design of the accounting and internal control systems and their operation, he then proceeded in
performing test of controls related to production cycle.

Which of the following auditing procedures probably would provide the most reliable evidence
concerning the
entity’s assertion of rights and obligations related to inventories:
A. Trace the test counts noted during the entity’s physical count to the entity’s summarization
of quantities.
B. Inspect agreements to determine whether any inventory is pledged as collateral or subject to
any liens.
C. Select the last few shipping documents used before the physical count and determine whether
the shipments were recorded as sales.
D. Inspect the open purchase order file for significant commitments that should be considered
for disclosure.
6. On March 1, 2009, Mr. Seco signed a franchise agreement with Lovely Face. Lovely Face, charged
an initial franchise fee of P255,000 from Mr. Seco. When the agreement was signed, Mr. Seco
paid P95,000 and signed a non-interest bearing note for the balance. The note is to be paid in
four equal annual installments each beginning March 1, 2010. Mr. Seco’s normal borrowing rate
is 12%. The down payment is nonrefundable, collection of the note is reasonably assured and the
franchisor has performed substantially all of the services required by the initial franchise
fee. Present and future value factors are as follows:
Present value of P1 at 12% for 4 periods 0.6355
Future value of P1 of 12% for 4 periods 4.7793
Present value of an ordinary annuity of P1 at 12% for 4 periods 3.0374
How much revenue from franchise fee will be reported by Lovely Face on its December 31, 2009 income
statement?
a. P255,000 b. P121,496 c. P216,496 d. P196,680

7. PWDs, regardless of age who are not gainfully employed and chiefly dependent upon the taxpayer,
shall be treated as dependent for additional exemption under Section 35(b)
a. Only if the PWD is a child of the taxpayer
b. Only if the PWD is related to the taxpayer within the fourth degree of consanguinity
c. Only if the PWD is related to the taxpayer within the fourth degree of affinity
d. Whether or not the PWD is related to the taxpayer within the fourth degree of
consanguinity or affinity

8. When the capital (of a partnership) is P3,000 or more, it must be in a public instrument and
must be recorded with the Securities and Exchange Commission (Article 1772). A, B and C agreed
to form a partnership and each contributed P10,000 as capital of the partnership.
There was no compliance in the provisions of Article 1772.
A. The partnership was not established
B. The partnership did not have juridical personality
C. The partnership was established and any partner may compel the execution of a public
instrument
D. The partnership is void

9. Statement 1: If an entity prepares interim financial reports in accordance with IAS 34 Interim
Financial Reporting the entity need not apply the requirements of IFRS 9 to interim periods
prior to the date of initial application if it is impracticable.

Statement 2: The entity’s business model depends on management’s intentions for an individual
instrument. Accordingly, this condition is an instrument-by-instrument approach to
classification and should be determined on a lower level of aggregation.

Statement 3: A contractual term that changes the timing or amount of payments of principal or
interest does result in contractual cash flows that are solely principal and interest on the
principal amount outstanding unless it is a variable interest rate that is consideration for the
time value of money and the credit risk associated with the principal amount outstanding.

a) Only One statement is correct

b) Two statements are correct
c) All statements are correct
d) None of the statements are correct

10. Superman died with a claim against Juanico. Juanico has properties worth of P 250 000 and
obligations of P 350 000. Included in the obligations of Juanico are P 50 000 unpaid taxes owed
to the Government of the Philippines and P 90 000 payable to Escolastica.

The estate of Superman has a deductible claim against an insolvent debtor amounting to:
a. P 90 000
b. P 60 000
c. P 30 000
d. None of the choices

AVERAGE ROUND
1. Which of the following best describes the accounting for discounts and premiums for bonds
purchased by a fiduciary for an estate?
a. Premiums are amortized, but discounts are not.
b. Discounts are amortized, but premiums are not.
c. GAAP guidelines for amortization are followed, i.e., both are amortized.
d. Like bonds purchased prior to the death, neither discounts nor premiums are amortized.
2. How is the portion of consolidated earnings to be assigned to noncontrolling interest in
consolidated financial statements determined?
a. The net income of the parent is subtracted from the subsidiary's net income to
determine the noncontrolling interest.
b. The subsidiary's net income is extended to the noncontrolling interest.
c. The amount of the subsidiary's earnings recognized for consolidation purposes is
multiplied by the noncontrolling's percentage ownership.
d. The amount of consolidated earnings determined on the consolidated working papers is
multiplied by the noncontrolling interest percentage at the balance-sheet date.

3. Statement 1- Any stipulation authorizing the pledgee to appropriate the thing pledged is void
and without effect.
Statement 2- If after the auction sale, the thing pledged is not sold, the pledgee can
appropriate the thing pledged.
a. true, true b. false, false c. true, false d. false, true

4. I. Should the vendee’s failure to pay, cover two or more installments, the vendor may foreclose
the chattel mortgage on the thing sold but he shall have no further action against the purchaser
to recover any unpaid balance of the price, except if there is an agreement to the contrary.

II. Sale is a consensual contract, therefore delivery or payment is not essential for perfection.

A. First statement is true, second statement is false.

B. First statement is false, second statement is true.
C. Both statements are true.
D. Both statements are false

5. Liza, Marie and Nena formed a joint venture. Liza is to act as manager and is designated
to record the joint venture transactions in his books. As manager, she is allowed a
management fee of P336,000. Profits and losses are to be divided equally. The following
balances appear at the end of 2008 before adjustments for venture inventory and
distribution of profits and losses:
Debit Credit
Joint venture cash P1,344,000
Marie, capital 84,000
Nena, capital P756,000

The venture is terminated on December 31, 2008 with unsold merchandise costing P291,200.
(a) Assuming that the joint venture profit is P140,000. What is the balance of the joint
venture account before the distribution of profit? (b) Assuming that the joint venture incurs
a loss of P28,000, what is the balance of the joint venture account before the distribution
of loss?
a. P431,200 Dr; P319,200 Cr c. P151,200 Cr; P263,200 Dr
b. P151,200 Dr; P319,200 Cr d. P151,200 Dr; P319,200 Dr

DIFFICULT ROUND

1. Larson, Inc. sold merchandise for 600,000 FC to a foreign vendor on November 30, 20X5.
Payment in foreign currency is due January 31, 20X6. On the same day, Larson signed an
agreement with a foreign exchange broker to sell 600,000 FC on January 31, 20X6. Exchange
rates to purchase 1 FC are as follows:
Nov. 30, 20X5 Dec. 31, 20X5 Jan. 31, 20X6
Spot............. ₱1.49 ₱1.46 ₱1.43
30 day........... ₱1.48 ₱1.43 ₱1.44
60 day........... ₱1.47 ₱1.40 ₱1.42
What will be the amount of the Forward Contract Receivable-Dollars on November 30, 20X5?
a. ₱894,000
b. ₱888,000
c. ₱882,000
d. ₱858,000
 2. On January 1, 20X1, Parent Company acquired 90% of the common stock of Subsidiary Company
for ₱337,000. On this date, Subsidiary had total owners' equity of ₱270,000, including
retained earnings of ₱100,000.

On January 1, 20X1, any excess of cost over book value is due to the undervaluation of
land, building, and goodwill. Land is worth ₱10,000 more than cost. Building is worth
₱50,000 more than book value, has a remaining life of 9 years, and is depreciated using
the straight-line method.

During 20X1 and 20X2, Parent has appropriately accounted for its investment in Subsidiary
using the simple equity method.

During 20X2, Subsidiary sold merchandise to Parent for ₱50,000, of which ₱10,000 is held
by Parent on December 31, 20X1. Subsidiary's gross profit on sales is 40%. On December
31, 20X1, Parent still owes Subsidiary ₱7,000 for merchandise acquired in December.

On July 1, 20X0, Subsidiary sold ₱100,000 par value of 10%, 10-year bonds for ₱104,000.
The bonds pay interest semiannually on January 1 and July 1. Straight-line amortization
of premium is used. On January 1, 20X2, Parent repurchased one-half of the bonds at par.

On January 1, 20X2, Parent purchased equipment for ₱104,610 and immediately leased the
equipment to Subsidiary on a 4-year lease. The minimum lease payments of ₱30,000 are to
be made annually on January 1, beginning immediately, for a total of 4 payments. The
implicit interest rate is 10%. The useful life of the equipment is 4 years. The lease has
been capitalized by both companies. Subsidiary is depreciating the equipment using the
straight-line method and assuming a salvage value of ₱4,610.

A partial lease amortization schedule, applicable to either company, is presented below:

Carrying Carrying Interest Principal
Value on Value Rate Interest Payment Reduction
1-1-20X2 ₱104,610
- 30,000
1-1-20X2 ₱ 74,610 10% ₱7,461 ₱30,000 ₱22,539
- 22,539
1-1-20X3 ₱ 52,071

From the data given, how much is the goodwill to be reported?

a. P 40 000
b. P 42 000
c. P 94 000
d. P 95 000

3. Disclaimer of opinion, when the effect of misstatements is highly material, is usually

issued when
I. It becomes impossible to gather sufficient appropriate evidence due to
circumstance
II. No evidence can be gathered because the auditor is prevented by management from
performing such procedures and the auditor cannot also perform alternative
procedures
a. I only
b. II only
c. Both I and II
d. Neither I nor II
 4. You have been assigned to the audit of Aguillon Inc., a manufacturing company. You have
been asked to summarize the transactions for the year ended December 31, 2004, affecting
shareholders’ equity and other related accounts. The shareholders’ equity section of
Aguillon’s December 31, 2003, balance sheet follows:

Shareholders’ Equity

Contributed capital:
Ordinary share P2 par value, 500,000 shares authorized,
90,000 shares issued, 88,790 shares outstanding P 180,000
Paid-in capital in excess of par 1,820,000
Paid-in capital from treasury share 22,500
Total contributed capital P2,022,500
Retained earnings 324,689
Total contributed capital and retained earnings P2,347,189
Less: Cost of 1,210 shares of treasury share 72,600
Total shareholders’ equity P2,274,589

You have extracted the following information from the accounting records and audit working papers.

2004
Jan. 15 Aguillon reissued 650 shares of treasury share for P40 per share. The 1,210 shares of
treasury share on hand at December 31, 2001, were purchased in one block in 2001. Aguillon used the
cost method for recording the treasury shares purchased.

Feb. 2 Sold 90, P1,000, 9% bonds due February 1, 2005, at 103 with one detachable share warrant
attached to each bond. Interest is payable annually on February 1. The fair market value of the
bonds without the share warrants is 97. The detachable warrants have a fair value of P60 each and
expire on February 1, 2005. Each warrant entitles the holder to purchase 10 shares of Ordinary
share at P40 per share.

Mar. 6 Subscriptions for 1,400 shares of Ordinary share were issued at P44 per share, payable 40%
down and the balance by March 20.

20 The balance due on 1,200 shares was received and those shares were issued. The
subscriber who defaulted on the 200 remaining shares forfeited the down payment in
accordance with the subscription agreement.

Nov. 1 There were 55 share warrants detached from the bonds and exercised.

Net income for the year is P600,000.

The Total Shareholders’ Equity at December 31, 2004 is:

a. P 2,984,309 b. P 2,659,620 c. P 2,384,309 d. P 2,059,620

5. Telephone Corp. is contemplating four projects: L, M, N, and O. The capital costs for
the initiation of each mutually-exclusive project and its estimated after-tax, net cash
flow are listed below. The company’s desired after-tax opportunity costs is 12%. It has
P900,000 capital budget for the year. Idle funds cannot be reinvested at greater than
12%.
In Thousand Pesos
L M N O
Initial cost 400 470 380 420
Annual cash flows
Year 1 113 180 90 80
2 113 170 110 100
3 113 150 130 120
4 113 110 140 130
5 113 100 150 150

Net present value P7,540 P59,654 P54,666 P(15,708)

Internal rate of return 12.7% 17.6% 17.2% 10.6%
Excess present value index 1.02 1.13 1.14 0.96
The company will choose
a. Projects M & N. b. Projects L & N. c. Projects L & M. d. Projects M, N & O.