LAW

 Partnership (Application of payment owes to separate demandable debts)

Trevor owes P 3,000 to CHAMP Company, a partnership composed of Charles, Harry, Albert,
Mark and Prince with Mark as the manager who is authorized to collect all credits of the firm.
He also owes Charles the amount of P6,000. Both debts are already due. Trevor gives P 3,000 to
Charles in payment of his debt to the latter. Charles thus issues his own receipt.
a. Payment will be applied proportionately to the two credits at P 1,000 for Charles’ credit and
P2,000 to CHAMP credit.
b. Payment will be applied equally to the two credits.
c. Payment will be applied in its entirety to Charles’ credit.
d. Payment will be applied in its entirety to CHAMP’s credit.

 C

There shall be no proportionate application of payment because the debt is owed to a

partner not authorize to receive payment even if both debts are due.

Reference :

Soriano, F. (2016). Partnership. In F. Soriano, Notes in Business Law (p. 734).

Lazarte, a limited partner in Bellevue Company, Ltd. received the amount of P100,000
representing his contribution which was being returned on the date stipulated in the certificate.
Partnership records,however, showed that the firm had liabilities of P 220,000 which arose
before Lazarte received the return of his contribution, and assets of only P 90,000 after such
return of contribution.

a. Lazarte is bound to bring back to the partnership the amount of P100,000 plus
interest thereon.
b. Lazarte is bound to give the partnership P220,000 plus interest thereon.
c. Lazarte is bound to give the partnership P 130,000 plus interest.
d. Lazarte is not bound to return to the partnership any amount because he received
the return of his contribution pursuant to a contractual stipulation.
 A

Reference : Soriano, F. (2016). Partnership. In F. Soriano, Notes in Business Law (p. 738).

 Obligation

D owes C P 50,000. The obligation is secured by the guaranty of G and real mortgage on D’s lot.
Susequently, G, without the knowledge of D, paid C the amount of P50,000.
 a. G can go after D to collect and if D cannot pay, G can foreclose the mortgage
because he is entitled to subrogation.
b. G can go after D to collect and if D cannot pay, G can foreclose the mortgage
because he is entitled to compensation.
c. G can go after D to collect and if D cannot pay, G can foreclose the mortgage
because he is entitled to condonation.
d. G can go after D to collect but he is not entitled to any other right because the
payment he made to C was without the knowledge of D.

 A

Subrogation transfers to the person subrogated the credit with all the rights either
against debtors or third persons , be they be guarantors or possessors of mortgages (
Art. 1303)

Reference : Soriano, F. (2016). Obligation. In F. Soriano, Notes in Business Law (p. 150).

P took a public bus in going to his office. Although P paid his fare, the bus conductor did not
issue to him a ticket. Along the way, the bus met an accident causing a slight injury to P and
other passengers. If P is to recover damages from the bus owner, the source of the bus
owner’s liability is :

a. Contract
b. Quasi-delict
c. Law
d. P cannot recover any amount because no ticket was issued.

 A
In this case even if there is no issued ticket, the bus owner is bound by contracts
because there is a meeting of minds to render some service.

Reference : Soriano, F. (2016). Obligation. In F. Soriano, Notes in Business Law (p. 128).

A, B, and C are indebted to W,X, Y and Z in the amount of P24,000. In this case:
a. W can collect P8,000 each from A, B and C. Then he must give P6,000 each to X,Y,Z.
b. W can collect P2,000 each from A, B and C. Then he need not give any amount to X,Y,Z.
c. W can collect P6,000 from either A, Bor C. Then he need not give any amount to X,Y,Z
from the amount collected.
d. W can collect P24,000 from either A, B or C. Then he must give P6,000 each to X,Y,Z.

 B
If there is no statement whether jointly or solidarily, it is assume that debtors solidarily
liable.
 Reference : Soriano, F. (2016). Obligation. In F. Soriano, Notes in Business Law (p. 173).

Managerial Advisory Services

Financial Management ( Working Capital Finance )

Using EOQ model, Apple Baby Corporation computed the economic order quantity for one
of the products it sells to be 4,000 units. Apple Baby Corporation maintains safety stock of
300 units. The quarterly demand for the product is 10,000 units. The order cost is 200 per
order. The purchase price of the product is P 2.40. The company sells at 100% markup.The
annual inventory carrying cost is equal to 25% of the average inventory level.
1. Annual inventory carrying costs is
a. 2,300
b. 2,000
c. 4,300
d. 4,000
2. Total inventory order cost per year is
a. 2,300
b. 800,000
c. 2,000
d. 5,520

 1.A 2.C
Annual demand: 10, 000 units x 4 40,000 units
Carrying cost per unit : ( 2.40 x .25) P1

EOQ =√(2𝑎𝑑 ÷ 𝑘)
=√( (2𝑥40,000𝑥200) ÷ 1
= 4,000 units

Average inventory ( EOQ ÷ 2 + safety stock ) 2,300 units

Carrying cost per unit x P1
ANNUAL INVENTORY CARRYING COST 2,3000 units

Frequency of orders:
Annual Demand÷ EOQ ( 40,000 ÷ 4,000) 10 times
Order cost per order x 200
TOTAL ORDER COST P 2,000
 Reference : Roque, R. (2016). Working Capital Finance. In R. Roque, Reviewer in
Management Advisory Services (p. 798).

A major activity at the Professional Regulation Commission is the processing of

application forms for the Board Examinations of the various profession under its
control.To analyze and control the costs incurred in the Applications Department, the
PRC’s accountant previously prepared the following budgeted data for the year 200A:

Normal number of applications processed per year 150,000

Budgeted variable costs of processing the 150,000 applications 10,500,000
Fixed costs of the year 2,500,000
Number of hours per 100 applications processed 200 hours
Wage rate per 100 applications P 6,000

During the year 200A, the department processed a total of 120,000 applications using
250,000 hours. The cost incurred were:
Total costs 11,140,000
Labor costs 7,500,000

1. For 200A, the Application Department’s total cost to process the 120,000
applications assuming standard performance should be
a. 13,000,000
b. 10,900,000
c. 10,500,000
d. 8,400,000

2. The total labor cost variance for 200A

a. 300,000 unfavorable
b. 300,000 favorable
c. 1,200,000 unfavorable
d. 1,860,000 favorable

3. The total direct labor cost variance may be broken down into:
Spending Variance Efficiency Variance
a. 1.2M unfavorable 10,000 unfavorable
b. 1.86M unfavorable 300,000 unfavorable
c. 300,000 unfavorable 0
d. 0 300,000 unfavorable

 1. B 2. A 3. D
 Standard VC = 10.5M/ 150,000= 70 per application

Variable Cost ( 120,000 *70) 8,400,000

Budgeted Fixed Cost 2,500,000
10,900,000

Actual Labor Cost 7,500,000

Standard Labor Cost 7,200,000
300,000U
Standard Labor Cost:
Actual number X Standard Labor cost/unit
120,000 X 60 = 7,200,000

Time Rate
Actual 250,000 30
Standard 240,000 30
10,000U 0
X 30/unit
300,000 U

Reference : Roque, R. (2016). Standard Costing and Variance Analysis. In R. Roque,

Reviewer in Management Advisory Services (p. 58-60).

Auditing Theory

1. Misstatements in batch computer system caused by incorrect programs or data may not be
detected immediately because-
a. The processing of transactions in a batch system is not uniform
b. There are time delays in processing transactions in a batch system.
c. The identification of errors in input data typically is not part of the program
d. Errors in some transactions may cause rejection of other transactions in the batch.

 B
In batch processing system, similar transactions are processed in groups or batches
periodically, errors in a given batch may be detected only after the lapse of considerable
time from the initiation of transactions.

Reference: Roque, G. (2018-2019). Auditing in CIS or IT Environment. In G. Roque, CPA

Examination Reviewer: Auditing Theory (pp. 359-360).

2. The auditor is required to consider how an entity’s general CIS controls affect the CIS
applications significant to the audit. Accordingly, the auditor should
a. Review the design of the general CIS controls only.
 b. Review the design of the CIS application controls only.
c. Review the design of the general CIS controls before reviewing the CIS application
controls
d. Reviewing the design of the CIS application controls before reviewing the design of the
general CIS controls.
 C
General CIS controls are interdependent controls in that their operation is essential to
the effectiveness of CIS application controls. So, it is more efficient approach to review
first the General CIS controls.

Reference: Roque, G. (2018-2019). Auditing in CIS or IT Environment. In G. Roque, CPA

Examination Reviewer: Auditing Theory (pp. 374-375).

3. An employee misappropriates cash receipts from sales on account. Which of the following
acts would conceal this defalcation and be least likely to be detected by an auditor?
a. Understating the cash receipts journal.
b. Overstating the accounts receivable subsidiary ledger.
c. Overstating the account receivable control account.
d. Understating the sales journal.

 D
The most effective way of concealing theft of cash receipts is by not recording sales on
account. The procedures will not detect defalcation because accounts remain balanced,
yet incomplete.

Reference: Roque, G. (2018-2019). Risk Assessment and Internal Control. In G. Roque,

CPA Examination Reviewer: Auditing Theory (p. 295).

4. In a well-designed internal control system, employees in the same department most likely
would approve purchase orders and also
a. Negotiate terms with vendors
b. Authorize requisition of goods.
c. Inspect and count goods upon receipt.
d. Reconcile the open invoice file.

 A
In well-designed IC system, the entity’s purchasing department approves purchase
orders and negotiates terms with vendors as part of authorization process.

Reference: Roque, G. (2018-2019). Risk Assessment and Internal Control. In G. Roque,

CPA Examination Reviewer: Auditing Theory (p. 308).
5. Which of the following questions would an auditor most likely include in the production
cycle internal control questionnaire?
a. Are details of individual disbursements for raw materials compared to the total for
posting to the general ledger?
b. Are vendor invoices for raw materials approved before payment?
c. Are all issuances of raw materials to production based on approved requisition forms?
d. Are signed checks for the purchase of raw materials sent directly to intended payees
after signing, without being returned to the person who authorized the invoice
processing?

 C
Answers A, B,D are incorrect because it pertain more directly to expenditure or
disbursement cycle.

Reference: Roque, G. (2018-2019). Risk Assessment and Internal Control. In G. Roque,

CPA Examination Reviewer: Auditing Theory (p. 167).

Advanced Financial Accounting and Reporting