Naqdown Final Questions

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Easy Questions No. 1 Under a royalty agreement with another company, W and Co. will pay royalties for the assignment of a patent for three years. When should the company recognize the royalty payment as an expense? A . B . C . ! . In the period paid. In the period incurred. At the date the royalty agreement egan. At the date the royalty agreement expired. Easy Questions No. 2  "he following shall e considered considered as #de minimis# ene$ts ene$ts not su%ect to income tax as well as withholding tax on compensation income of oth managerial and ran& and a nd $le employees, except' a. (onetized (onetized )alue )alue of )acation )acation and sic& lea)e lea)e credits credits paid to go)ernm go)ernment ent o*cials and employees . (onetized (onetized unused unused sic& lea)e credit credits s of pri)ate pri)ate employees employees not exceeding exceeding ten ten +- days during the year c. (edical (edical cash allowanc allowance e to dependents dependents of of employees, employees, not not exceeding exceeding /01/01- per employee per semester or /21 per month3 d. 4ice susidy susidy of /,1-/,1-- or one + + sac& of 1- &g. &g. rice per month month amounting amounting to not more than /,1--3 ANSWER: B 5 (ust e 6)acation lea)e7 instead of 6sic& lea)e7 BASIS: 8ec.  of 44 9o. 15 +:urther amendments to 44 9os. 25;< and =5;<, as last amended y 44 9o. 152--<, with respect to #!e (inimis Bene$ts#. Easy Questions No. 3 !iamant !iamante e (otors (otors sells sells locally locally manufa manufactu cture red d %eeps %eeps on instal installmen lments. ts. Infor Informat mation ion presented elow relates to !iamante>s operations for the last three calendar years. Cost Cost of inst insta allme llment nt sale sales s ross pro$t on installment sales utst utstan andin ding g insta installm llmen entt rec> rec>l, l, !ec. =' :rom 2-1 :rom 2- :rom 2-= 2-1 /<,0 /< ,0@1 @1,,@21 @21 =2 /;,02<, 21 =,-21, --- 2- /0,0 /0 ,0---,,--=- 2-= /,; / ,;1 1-,--,--2< /<,=<0,1-,12,1-- /,<2,1-- !iamante (otors uses the installment method of accounting. Dow much is the total realized gross pro$t for calendar year 2-1? Answer: P3,044,250 :rom 2-1 E+<,0@1,@21F@<5 ;,02<,21GH=2 :rom 2- +<,=<0,1--5=,-21,---H=- :rom 2-= +,12,1--H2<  "otal  "otal /,-2,--,@-<,012=,1-/=,-,21- Easy Questions No. 4  "he in)entory on hand at !ecemer =, =, 2-1 for :A8D Company is )alued at a cost of /hp;0,<--. "he following items were not included in the in)entory amount' a. /urchased /urchased goods goods in transit, transit, shipped shipped :B :B destination destination in)oice in)oice price price /hp=2,--- which included freight charges of /hp,@--. . oods held on consignment consignment y :A8D Company Company at at a sales sales price of /hp2<,---, including sales commission of 2- of the sales price c. oods sold to A44W Compan Company, y, under terms terms :B destina destination, tion, in)oice in)oiced d for /hp<,1-- which includes /hp,--- freight charges to deli)er the goods. oods are in transit. d. /urchased /urchased goods goods in transit, transit, terms terms :B :B shipping shipping point, in)oice price price /<,--- freight cost /hp=,---. e. oods out out on consignment consignment to to CC CC Company, Company, sales sales price hp/=@,hp/=@,--. -. Assuming that the Company>s selling price is - of in)entory cost, the ad%usted cost of Arrow Company>s in)entory at !ecemer =, 2-1 should e' ANSWER: P!1,03",500 Unad%usted alance a. oods in transit +/<,1--5,---F- . /urchased goods +/<,---J=,--- c. oods on consignment +=@,--F- Ad%usted alance /hp;0,<2,1-1,--2@,--/hp,-=0,= -- Easy Questions No. 5 Which of the following is true in relation to law of diminishing marginal utility? A. (arginal (arginal utility will will decline as a consumer consumer acKuires acKuires additiona additionall units of a speci$c product. B. "otal utility utility will decline as a consumer consumer acKuires acKuires additional additional units of a speci$c product. C. !eclining !eclining utilities utilities causes causes the demand demand cur)e to to slope upward. upward. !. (argin (argin is exces excess s of cost o)er sales. Answer: P3,044,250 :rom 2-1 E+<,0@1,@21F@<5 ;,02<,21GH=2 :rom 2- +<,=<0,1--5=,-21,---H=- :rom 2-= +,12,1--H2<  "otal  "otal /,-2,--,@-<,012=,1-/=,-,21- Easy Questions No. 4  "he in)entory on hand at !ecemer =, =, 2-1 for :A8D Company is )alued at a cost of /hp;0,<--. "he following items were not included in the in)entory amount' a. /urchased /urchased goods goods in transit, transit, shipped shipped :B :B destination destination in)oice in)oice price price /hp=2,--- which included freight charges of /hp,@--. . oods held on consignment consignment y :A8D Company Company at at a sales sales price of /hp2<,---, including sales commission of 2- of the sales price c. oods sold to A44W Compan Company, y, under terms terms :B destina destination, tion, in)oice in)oiced d for /hp<,1-- which includes /hp,--- freight charges to deli)er the goods. oods are in transit. d. /urchased /urchased goods goods in transit, transit, terms terms :B :B shipping shipping point, in)oice price price /<,--- freight cost /hp=,---. e. oods out out on consignment consignment to to CC CC Company, Company, sales sales price hp/=@,hp/=@,--. -. Assuming that the Company>s selling price is - of in)entory cost, the ad%usted cost of Arrow Company>s in)entory at !ecemer =, 2-1 should e' ANSWER: P!1,03",500 Unad%usted alance a. oods in transit +/<,1--5,---F- . /urchased goods +/<,---J=,--- c. oods on consignment +=@,--F- Ad%usted alance /hp;0,<2,1-1,--2@,--/hp,-=0,= -- Easy Questions No. 5 Which of the following is true in relation to law of diminishing marginal utility? A. (arginal (arginal utility will will decline as a consumer consumer acKuires acKuires additiona additionall units of a speci$c product. B. "otal utility utility will decline as a consumer consumer acKuires acKuires additional additional units of a speci$c product. C. !eclining !eclining utilities utilities causes causes the demand demand cur)e to to slope upward. upward. !. (argin (argin is exces excess s of cost o)er sales. Answer' A  "he law states that marginal utility utility declines as consumers acKuire acKuire more of a good. "herefore, answer +a is correct. Answer + is incorrect ecause total utility will not decline as more of a good is acKuired. Answer +c is incorrect ecause the demand cur)e slopes downward. Easy Questions No. # +W Which hich of the foll follo owing wingtterms erms is nor normall ally not not asso associ ciat ated ed with extinguishing an oligation through the process of no)ation? ! a Lxpromission .  8urogation . c !elegacion . d 4emission . Easy Questions No. " Which of the following situations is most li&ely to e the su%ect of a written interim report to the engagement client? a 8e)enty 8e)enty percent percent of the the planned planned audit wor& wor& has een een completed completed with no signi$cant ad)erse oser)ations.  "he auditors auditors ha)e decided decided to sustitute sustitute sur)ey sur)ey procedure procedures s for some of of the planned detailed re)iew of certain records. c "he engagement engagement program program has has een expanded expanded ecause ecause of of indications indications of possile fraud. d pen urning urning at a susidiary susidiary plant poses poses a prospecti)e prospecti)e )iolation )iolation of of pollution pollution regulations. So$ution: % a Incorrec Incorrect. t. "here is no need need for earlier earlier consideratio consideration n in this situation. situation.  Incorrec Incorrect. t. Changes in auditor auditor methodology methodology are not not of particular particular importance importance to the engagement client. c Incorrec Incorrect. t. Indications Indications of possile possile fraud fraud would not e communica communicated ted to the engagement client. &' (orre)t. Su) Su) a situation wou$& re*uire re*uire i++e&iate i++e&iate attention. attention. Easy Questions No.  Which of the following is the most li&ely strategy to reduce the rea&e)en point? A. Increase Increase oth oth the $xed $xed costs costs and the contriu contriution tion margin. margin. B. !ecrease !ecrease oth oth the $xed $xed costs costs and the contriut contriution ion margin. margin. C. !ecrease !ecrease the $xed $xed costs and and increase increase the contriutio contriution n margin. !. Increase Increase the $xed $xed costs and decrease decrease the contriutio contriution n margin. Answer' (  "he short5cut rea&e)en rea&e)en point formula is calculated calculated as follows'  "hus, y decreasing the numerator +$xed costs and increasing the deno denomi minat nator or +con +contr tri iuti ution on mar margin gin,, the the rea rea& &e)en e)en poin pointt will will e reduced. Easy Questions No. - (inecraft Company Kuarries marle at two locations and sells it to e used in construction of uildings. "he Company pro)ides for a depletion rate of 1.  "he Kuarry is leased on a year5to5year year5to5year asis with the Company paying paying a royalty of /hp-.-1 per ton of marle Kuarried. ther data rele)ant to the reKuirements are' Lstimated total reser)es, tons /hp@-,---,-- "ons  "ons Kuarried through !ecemer !ecemer =, 2- ,---,-- "ons  "ons Kuarried, 2- ,@--,--8ales, 2- ,2--,--Dow much would e the depletion for 2- for $nancial reporting purposes? ANSWER: P0 8ince the two Kuarries are merely leased and the Company pays a /hp-.-1 royalty for e)ery ton of marle Kuarried, (inecraft will not recognize the Kuarries as assets in its oo&s and will record only royalty expense for leasing them. Dence, there is no depletion expense. Easy Questions No. 10 AAB Cons Constr truc ucti tion on Comp Compan any y uses uses the the per percent centag age5 e5of of5c 5com ompl plet etio ion n meth method od of  accounting. In 2- AAB egan wor& under contract M=<, which pro)ided for a contract price of /2-,---,---. ther details follow' Cost incurred during the year Lstimated costs to complete, as of !ecemer = Billing during the year Collections during the year 2- /=,---,--2,---,--- 2-1 /1,01-,--5-5 =,@--,--2,1--,--- 1,--,--1,1--,---  "he portion of the total contract price to e recognized as re)enue in 2- is Answer: P4,000,000 Cost incurred during the year /=,---,-- "otal estimated costs 1,---,--+=,---,---J2,---,--- /ercentage of completion 2- Contract price 2-,---,--4e)enue in 2- /,---,--A/erae Question No. 1 . "he manager of a production line has the authority to order and recei)e replacement parts for all machinery that reKuire periodic maintenance. "he internal auditor recei)ed an anonymous tip that the manager ordered sustantially more parts than were necessary from a family memer in the parts supply usiness. "he unneeded parts were ne)er deli)ered. Instead, the manager processed recei)ing documents and charged the parts to machinery maintenance accounts. "he payments for the undeli)ered parts were sent to the supplier, and the money was di)ided etween the manager and the family memer. Which of the following tests would est assist the auditor in deciding whether to in)estigate this anonymous tip further? a Comparison of the current Kuarter>s maintenance expense with prior5period acti)ity.  /hysical in)entory testing of replacement parts for existence and )aluation. c Analysis of repair parts charged to maintenance to re)iew the reasonaleness of the numer of items replaced. d 4e)iew of a test sample of parts in)oices for proper authorization and receipt. So$ution: ( a Incorrect. "he current Kuarter>s expense would eKual the prior period>s acti)ity unless the manager %ust started this fraud. "he auditor has no information on how long this might ha)e een occurring.  Incorrect. /hysical testing would not locate nonexistent parts that ha)e already een charged to maintenance. )' (orre)t. An ana$ysis o re!air !arts )are& to +aintenan)e wou$& *uantiy te e)essi/e nu+er o ite+s an& &ete)t tat ause +ay e o))urrin. d Incorrect. ac& of segregation of duties allowed the fraud to occur. "he manager was authorized to process oth the purchase and receipt, so the test would only )erify the fraudulent paperwor&. A/erae Question No. 2 +W Under the cumulati)e )oting system of electing directors of a 15memer oard of a duly organized corporation, a stoc&holder owning -- shares is entitled to cast a total of 2- )otes, distriuted eKually among 1 candidates that the stoc&holder ! a. wishes to elect . c. d. -- )otes, distriuted eKually among 1 candidates that the stoc&holder wishes to elect -- )otes, all casted in fa)or of a single candidate that the stoc&holder wishes to elect 1-- )otes, with ma%ority of )otes casted in fa)or a single candidate and remaining )otes distriuted eKually among  other candidates that the stoc&holder wishes to elect A/erae Question No. 3  "he (craw Company manufactures and sells Ariza handags to assorted prints. !ata for 2- follows' 8elling price per piece Nariale cost per piece 9umer of handags to rea&e)en 9et post5tax income +=1 tax rate /<.-/2.-21,--/1,<1- In 2-1, the company estimates that the selling price will e /;.1- per piece, )ariale cost to manufacture will increase y 21, and $xed costs will increase y 2-. Income tax rate of =1 will not change. Dow many units of handags does (craw Company must see in 2-1 in order to maintain the same net income after tax as in 2-? Answer' 2",000 units BL/ in units O :ixed Cost +8/ per unit 5 NC per unit :ixed cost O BL/ in units H +8/ per unit 5 NC per unit :ixed cost O 21,--- units H +/< 5 /2 /1-,:ixed cost O -- Contriution (argin :ixed cost 9et income efore tax E+9I after tax F =1G Income tax E=1 9I efore taxG CU44L9 A8" PLA4  " PLA4 /<;,-/1;,--- 8Kueezed +1-,--- +<-,---E/1-,--- H2-G ;,--- ;,--- +=,1- +=,1- 9et income after tax /1,<1- /1,<1- Contriution /<;,margin -9ew C( 4ate /0 E+/;.1 5 +/2 H 21G 2",000 8ales to meet last units yearQs net income A/erae Question No. 4 An asset is sold in three diRerent acti)e mar&ets at diRerent prices. An entity enters into transactions in all mar&ets and can access the price of those mar&ets for the asset at the measurement date. /rice that would e recei)ed  "ransaction costs in that mar&et Costs to transport the asset to the mar&et 9et amount that would e recei)ed aret A aret B aret ( /hp2@ += /hp21 + /hp2= + +2 +2 +2 2 22 2- Assuming none of these mar&ets is the principal mar&et, which of the three mar&ets is the most ad)antageous mar&et and what is the fair )alue of the asset? ANSWER: aret B an& 67 is P!23 /er /:48 =, Fair Value Measurement , a fair )alue measurement assumes that the transaction to sell the asset or transfer the liaility ta&es place either in the principal mar&et of the asset or liaility or in the asence of a principal mar&et, in the most ad)antageous mar&et for the asset.  "he most ad)antageous mar&et is the mar&et that maximizes the amount that would e recei)ed to sell the asset or minimizes the amount paid to transfer the liaility, after ta&ing into account transaction costs and transport costs. "hus, (ar&et B is the most ad)antageous mar&et as it has the largest net amount that would e recei)ed. :air )alue then is eKual to /hp2= which is the price that would e recei)ed minus the costs to transport the asset to the mar&et. A/erae Question No. 5 n Sanuary 2, 2-, Teith Uran Corporation purchased 0- of the ordinary shares of (imi Company for / ,@01,---. At that date, (imi Company had / ,<<0,1-- of ordinary shares outstanding and accumulated pro$ts of / ,102,1--. (imi>s eKuipment with a remaining life of 1 years had a oo& )alue of / 2,=<-,--- and a fair )alue of / 2,11-,---. (imi>s remaining assets had a oo& )alue eKual to their fair )alues. All intangile assets except goodwill are expected to ha)e remaining li)es of - years. 9on5controlling interest shall e measured at fair )alue.  "he income and di)idend $gures for oth Teith Uran and (imi Company are as follows' Income !i)idends Teith Uran 2- / / Corporation'  ,102,1-21,--2-   ,0<1,-   1-,1 --Income !i)idends (imi Company' 2- / /  =-,--11,--2-   1@;,1   20,1 1 --Teith Uran>s income shown does not include any di)idend income from (imi. Teith Uran>s accumulated pro$ts alance at the date of acKuisition was / 1,;1<,1--. Assume that (imi has outstanding @ / -- par )alue cumulati)e preference shares with an aggregate )alue of / ,---,--- that are classi$ed as eKuity and are held y non5controlling interests. What is the income attriutale to parent on !ecemer =, 2-? Answer: P1,"44,"00 A/erae Question No. # Ting>s anding Corporation has the following sales during the month' 8ales' 8ale to pri)ate entities su%ect to 2 / 1-,--8ale to pri)ate entities su%ect to - 1-,--8ale of exempt goods 2--,-- "otal sales for the month --,-- "he following input taxes were passed on y its NA" suppliers' Input tax' Input tax on taxale goods Input tax on zero5rated sales Input tax on sale of exempt goods Input tax on depreciale capital goods not attriutale to any speci$c acti)ity +pertains to monthly amortization for @- months /1,--=,--2,--2-,--- Dow much is the creditale input tax for the month? a. . c. d. /2,01/-,1-/=2,--/<,--- ANSWER: ! S89;I8N: Input tax on sale su%ect to 2 Input tax on zero5rated sale 4atale portion of the input tax not directly attriutale to any acti)ity'  "axale sales +- and 2  Amount of   "otal 8ales input tax not directly attriutale 2--,---  /2-,----,--;ota$ )re&ita$e in!ut ta or te +ont /1,--=,--- -,--P1,000 BASIS: 8ection .-5 of 44 9o. @5-1, as amended. A/erae Question No. " Which statement is incorrect? A  "o assess whether an internally generated intangile asset meets the criteria . for recognition, an entity classi$es the generation of the asset into a research phase and a de)elopment phase. B  "he cost of an internally generated asset comprises all directly attriutale . costs necessary to create, produce and prepare the asset for its intended use. C Internally generated rands, mastheads, pulishing titles, customer lists and . items similar in sustance shall e recognized as intangile assets. ! Internally generated goodwill shall not e recognized as an intangile asset. . Answer: ( /A8 =<, Intangible Assets paragraph @= states that internally generated rands, mastheads, pulishing titles, customer lists and items similar in sustance shall not e recognized as intangile assets. A/erae Question No.  8pouses 4amsay and 8ansa sold their family home, a capital asset for /-,---,---. It was acKuired in ;<- at /=,---,---. "he fair mar&et )alue as determined y the BI4 is /2,---,--- ut the fair mar&et shown in the schedule of )alues of the City Assessor is /,---,---. ater, the spouses utilized /<,---,--- for the acKuisition of their new family home. "he capital gains tax due is a. . c. d. /02-,--/10@,--/,--/2-,--- ANSWER: ( 8olution' +2,---,--- x @ x +2,---,---F-,---,--- O P144,000 A/erae Question No. -  "he following are types of hedging relationships except? A . B . C . ! . :air Nalue Dedge Cash :low Dedge Dedge of a 9et In)estment in a :oreign peration Dedge of :oreign Currency 4is& of a :irm Commitment Answer: % /A8 =;, Financial Instruments: Recognition and Measurement, paragraph <@ pro)ides that hedging relationships are of three types a sfollows' a air /a$ue e&e' a hedge of the exposure to changes in fair )alue of a recognised asset or liaility or an unrecognised $rm commitment, or an identi$ed portion of such an asset, liaility or $rm commitment, that is attriutale to a particular ris& and could aRect pro$t or loss.  )as s system are reprocessed through the auditor>s program to determine if the output otained matches the output generated y the client>s system. "his techniKue might identify prolems with the client>s processing ut would not identify a $ctitious or terminated employee. ' (orre)t. ;is ty!e o )o+!uterassiste& au&it te)ni*ue >(AA;' !rora+ )an i&entiy e+!$oyees wo a/e no &e&u)tions. ;is is i+!ortant e)ause ?)titious or ter+inate& e+!$oyees wi$$ enera$$y not a/e any &e&u)tions. c Incorrect. A CAA" program can recalculate amounts such as gross pay, net pay, taxes and other deductions, and accumulated or used lea)e times.  "hese recalculations can help determine if the payroll program is operating correctly or if employee $les ha)e een altered, ut would not identify a $ctitious or terminated employee. d Incorrect. In this type of CAA" program, certain actual transactions are 6tagged,7 and as they proceed through the system, a data $le is created that traces the processing through the system and permits an auditor to suseKuently re)iew that processing. "his would not, howe)er, identify a $ctitious or terminated employee. %i=)u$t Question No. 2 Statement I' A corporation may e a partner in a partnership. Statement II: A corporation may e a stoc&holder of another corporation. Statement III: A limited partner may contriute money to a partnership ut not ser)ices. A a nly statement I is false .  nly statement II is true . c . d . nly statement III is false All of the statements are true %i=)u$t Question No. 3 !uring 2-, !iana Corp. experienced the following power outages' 9umer of  outages per month  2 = 9umer of  months = 2  = 2 Lach power outage results in an out5of5poc&et costs of /--. :or /1-- per month, !iana can lease an auxiliary generator to pro)ide power during outages. If !iana leases an auxiliary generator in 2-1 the estimated sa)ings +or additional expenditures for 2-1 would e? Answer' P!1,#00 or P!1,#00 sa/ins In 2- !iana incurred the following costs due to power outages' 9umer of outages per month  2 = x x x x 9umer of  months = 2  = 2 ; outages x / --Foutage O /0,@-- 9umer of outages 2 < ; ;  "he cost of leasing an auxiliary generator is only /@,--- +2 mos. [ /1--Fmo. "herefore, !iana would e expected to sa)e /,@-- +/0,@-- Y /@,--- in 2-1 y leasing the generator. %i=)u$t Question No. 4 n !ecemer =, 2-1, an entity has an asset of /hp,--- for interest recei)ale that will e taxed when the cash is recei)ed in 2-@. "ax is payale at 2- percent on the $rst /hp1--,--- of taxale pro$t earned and =- percent on any remainder. In 2-1, the entity earned taxale pro$t of /hp1-,---. In 2-@, the entity expects to earn taxale pro$t of /hp11-,---. What amount should the entity recognize for the deferred tax liaility relating to the interest recei)ale? ANSWER: P!3# /A8 2 Income Taxes pro)ides that when diRerent tax rates apply to diRerent le)els of taxale income, deferred tax assets and liailities are measured using the a)erage rates that are expected to apply the taxale pro$t +tax loss of the periods in which the temporary diRerences are expected to re)erse. Lxpected tax to e paid in 2-@ +1--,--- x 2- J 1-,--- x =- /hp1,-- Lxpected a)erage tax rate +1,---F11-,--- 2-.; !eferred tax liaility +,--- x 2-.; /hp<=@ %i=)u$t Question No. 5  Son 8now Company had the following results of operations for the taxale year 2-1' ross Income /1--,--Business expenses /2--,--Capital ain +capital asset held for one+ year / 1-,--Capital oss +capital asset held for 2 months /--,--Dow much is the taxale income of Sohn 8now Company for the year 2-1?  Answer: P300,000 Solution: Gross Income usiness ex!enses P500,000 "00,000 #et Income $rom o!erations &a!ital Gain &a!ital 'oss #et &a!ital 'oss Taxable Income P%00,000 P 50,000 (P)00,000* (50,000* + P300,000 Section %(&* o$ t-e #IR& states t-at losses $rom sales or exc-anges o$ ca!ital assets s-all be allo.ed onl/ to t-e extent o$ t-e gains $rom sucsales or exc-anges %i=)u$t Question No. # 8arah Company, a manufacturing entity, owns 01 of the ordinary shares of 8andra Company, an in)estment entity. 8andra Company owns @- of the ordinary shares of Nanessa Company, an insurance entity. 8andra Company has control o)er Nanessa Company. In 8arah Company>s consolidated $nancial statements, should consolidation accounting or eKuity method e used for 8andra Company and Nanessa Company? A . B . C . ! . Consolidation used for 8andra and eKuity method used for Nanessa. Consolidation used for oth 8andra and Nanessa LKuity method used for 8andra and consolidation used for Nanessa LKuity method used for oth 8andra and Nanessa Answer: B 8arah should use consolidation for oth 8andra and Nanessa. 8arah has a controlling $nancial interest in 8andra through a 01 direct ownership.  "he intercorporate stoc& ownership of 8arah with respect to Nanessa is 1. 8andra owns @- of Nanessa and 8arah owns 01 of 8andra. "hus, indirectly, 8arah owns 1 of Nanessa +01 x @-. :urther, 8andra controls Nanessa. %i=)u$t Question No. " n April , 2- a company engages in the de)elopment of a property, which is expected to ta&e $)e years to complete, at a cost of /@(. the statements of $nancial position at !ecemer =, 2-= and !ecemer =, 2-, prior to capitalization of interest are as follows' !e)elopment property ther assets oans 2F=F= / 5 @,---,--/ @,---,--- 2F=F /,2--,--@,---,--/0,2--,--- 1.1 deenture stoc& Ban& loan at @ per annum Ban& loan at 0 per annum 8hareholders> eKuity / 2,1--,--5 /2,1--,--,2--,--- ,---,--- ,---,--- / =,---,--- /,0--,--- 2,1--,--- 2,1--,---  "he an& loan with eRecti)e interest rate at @ was drawn down to match the de)elopment expenditure on April , Suly , and ctoer  2-. "he 1.1 deenture stoc&s were irredeemale. Lxpenditure was incurred on the de)elopment as follows' April  Y /@--,---3 Suly  Y /--,---3 ctoer  Y /2--,---. If all the orrowing were general +i.e., the an& loan @ was not speci$c to the de)elopment and would ha)e een a)oided ut for the de)elopment, then the amount of interest to e capitalized would e (Round+o1 to " decimal 2 $or t-e general borro.ing rate*  Answer: P46,130 %i=)u$t Question No.  Which of the following is not a source of oligation? B a Culpa AKuiliana c 9egotiorum estio . .  (ora Accipendi d 8olutio Indeeti . . %i=)u$t Question No. - An audit committee is concerned that management is not addressing all internal audit oser)ations and recommendations. What should the a udit committee do to address this situation? a 4eKuire managers to pro)ide detailed action plans with speci$c dates for addressing audit oser)ations and recommendations.  4eKuire all managers to con$rm when they ha)e ta&en action. c 4eKuire the chief executi)e o*cer to report why action has not een ta&en. d 4eKuire the chief audit executi)e to estalish procedures to monitor progress. So$ution: % a Incorrect. (anagement are responsile for ensuring action on all internal audit oser)ations and recommendations, ut some actions may ta&e time to complete and it is not practical to expect that all will e resol)ed when an audit committee meets.  Incorrect. 8ee answer 6a7. c Incorrect. 8ee answer 6a7. &' (orre)t. ;e )ie au&it ee)uti/e is res!onsi$e or esta$isin a!!ro!riate !ro)e&ures or +onitorin te !roress y +anae+ent on a$$ interna$ au&it oser/ations an& re)o++en&ations. ;is res!onsii$ity sou$& e written into its )arter y te au&it )o++ittee, an& !roress sou$& e re!orte& at ea) au&it )o++ittee +eetin. %i=)u$t Question No. 10 Cersei owns shares of stoc&s of Castle Blac& Corporation which she purchased se)eral years ago for / million. "he stoc&s ha)e a current fair mar&et )alue of /- million. 8he donates one5half of the stoc&s to her daughter (yrcella on !ecemer =, 2- and the remaining half to her daughter (yrcella again on Sanuary 2, 2-1 when the fair mar&et )alue of the stoc&s was /1 million. Assuming (yrcella suseKuently sold all the shares of stoc&s to Lllaria 8and for /- million, how much did Cersei gain on the sale? a. . c. d. / million /1 million /; million /- million  Answer: C. P9 million Solution: P10 million – P1 million = P9 million SEI6INA9 R8N% Question No. 1 >EAS@' . Which of the following oser)ations y an auditor is most li&ely to indicate the existence of control wea&nesses o)er safeguarding of assets? I. II. III. IN. a  c d A ser)ice departmentQs location is not well suited to allow adeKuate ser)ice to other units. Lmployees hired for sensiti)e positions are not su%ected to ac&ground chec&s. (anagers do not ha)e access to reports that pro$le o)erall performance in relation to other enchmar&ed organizations. (anagement has not ta&en correcti)e action to resol)e past engagement oser)ations related to in)entory controls. I and II only. I and IN only. II and III only. II and IN only. So$ution: % >II an& I7 on$y' I. II. III. I7. Incorrect. "his is a symptom of wea& controls for achie)ing organizational goals and o%ecti)es, ut not for safeguarding of assets. (orre)t. ;is is a sy+!to+ o wea )ontro$s or saeuar&in o assets. Incorrect. "his is a symptom of wea& controls for achie)ing organizational goals and o%ecti)es, ut not for safeguarding of assets. (orre)t. anae+ents ai$ure to tae )orre)ti/e a)tion on !ast enae+ent oser/ations, wi) re$ate& to saeuar&in o assets, is a weaness re$ate& to saeuar&in o assets. Question No. 2 +W Ant +=0 yFo, Bug +20 yFo, Cat +0 yFo are indeted to !og in the amount of / 20,---, %ointly and se)erally. What is the maximum amount that !og can collect from Ant? Answer' / <,---.-Question No. 3 >A7ERAE' Boyz Corporation de)eloped the following income statement that shows the expected percentage results at a sales le)el of /,--,---' 8ales Cost of sales ross margin ther expenses Income - @- - =- -  "he cost of sales is all )ariale. Commissions is computed at 1 of sales, and are included in the \other expenses> category. Compute for Boyz Corporation>s margin of safety. Answer' P!400,000 (argin of 8afety O 8ales 5 BL/ BL/ O BL/ O (argin of 8afety (argin of 8afety O :ixed cost C( E21 H /,--,---G =1 /,---,--/,--,--- 5 /,---,--- O P400,000 Question No. 4 >EAS@' +W Being made liale to a third person, a partner y estoppel may e considered a C a 8ilent partner .  8ecret partner . c 9ominal partner . d !ormant partner . Question No. 5 >A7ERAE' As of !ecemer =, 2-, /assi)e company has the following deferred tax items in its accounting records' !eferred tax asset !eferred tax liaility /hp=,<,-;2,--- At the eginning of Sanuary 2-1, the go)ernment reduced the company tax rate from =1 to =2 eRecti)e Sanuary 2, 2-1. "he recorded tax alances represent the tax eRect of future taxale amounts and future deductile amounts at =1. What amount of tax expense or sa)ings should /assi)e Company recognize as a result of the change in tax rates? ANSWER: P!3,040 4estated alance +/=,<--F=1 x =2 Amount per oo&s )erstatement 4estated Balance +/,-;2,---F=1 x =2 Amount per oo&s )erstatement )erstatement of !"A )erstatement of !"  "ax sa)ings !eferred  "ax Asset /hp-1,0@ =,<-/hp=<,-!eferred  "ax iaility /hp;;<,+,-;2,-- /hp;=,@-/hp=<,-+;=,@-- /hp11,1@- Question No. # >EAS@' If the ending in)entory is understated, then? A. B. C. !. Current Current Current Current ratio ratio ratio ratio is o)erstated and L/8 is understated is understated and L/8 is o)erstated is o)erstated and L/8 is o)erstated is understated and L/8 is understated Answer' % Current 4atioO Current AssetsFCurrent iailities O CA Current 4atio L/8 O 9et Income F utstanding ordinary shares O 9I O lower O lower L/8 Question No. " >EAS@' In reconciling the Cash in an& of I9A Company with the an& statement alance for the month of 9o)emer 2-1, the following data are summarized' Boo& deits for 9o)emer, including ctoer C( for note collected, /hp@-,--Boo& credits for 9o)emer, including 98: of /hp2-,--- and ser)ice charge of /hp<-- for ctoer Ban& credits for 9o)emer including C( for 9o)emer for an& loan of /hp--,--- and ctoer deposit in transit for /hp<-,--Ban& deits for 9o)emer including ctoer outstanding chec&s of /hp0-,<-- and 9o)emer ser)ice charge of /hp2-- /hp<--,-@2-,--0--,--@--,--- What is the amount of outstanding chec&s for 9o)emer? ANSWER: P1"0,200 ctoer utstanding Chec&s Boo& credits for 9o)emer representing chec&s +@2-,---5 2-,---5<-- Ban& deits for 9o)emer representing chec&s +@--,---52-- 9o)emer utstanding Chec&s /hp0-,< -1;;,2-+1;;,<-- /hp0-,2 -- Question No.  >A7ERAE' While testing a di)ision>s compliance with company a*rmati)e5action policies, an auditor found that' i. :i)e percent of the employees are from minority groups. ii. 9o one from a minority group has een hired in the past year.  "he most appropriate conclusion for the auditor to reach is that' a Insu*cient e)idence exists of compliance with a*rmati)e5action policies.  "he di)ision is )iolating the company>s policies. c "he company>s policies cannot e audited and hence cannot e enforced. d With $)e percent of its employees from minority groups, the di)ision is eRecti)ely complying. So$ution: A a' (orre)t. Witout now$e&e o ui&e$ines or )o+!$ian)e, a reasona$e )on)$usion )annot e rea)e&.  Incorrect. "he fact that no minority has een hired this year is irrele)ant without &nowing the total hires for the period. c Incorrect. An a*rmati)e5action policy is clearly auditale. d Incorrect. "his conclusion cannot e reached without &nowledge of the actual company policy. Question No. - >EAS@' +W A constructi)e deli)ery of an immo)ale property su%ect to a sale and leaseac& transaction. ! a  "raditio re)i manu .   "raditio longa manu . c  "raditio cla)ium simolica . d  "raditio constitutum possessorium . Question No. 10 >A7ERAE' (anagement of 4apler Corporation is considering a loc&ox system. "he an& will charge /-,--- annually for the ser)ice, which will sa)e the $rm approximately /1,--- in processing costs. "he loc&ox system will reduce the Voat for cash receipts y three days. Assuming that the a)erage daily receipts are eKual to /--,---, and short5term interest costs are 1, calculate the ene$t or loss from adopting the loc&ox system. +indicate if ene$t or loss Answer' P!10,000 ene?t  "he $rm sa)es money if the interest sa)ings is greater than the increased cost of processing cash receipts. "he increased cost of processing cash receipts is eKual to /1,--- +/-,--- an& charge Y /1,--- cost sa)ings. "he interest sa)ings is measured y multiplying the increase in a)erage funds y the short5term interest rate. "he $rm will ha)e use of an additional /=--,--- +/--,--- [ = days in a)erage funds. "herefore, the interest sa)ings is eKual to /1,--- +/=--,--- [ 1, and the o)erall ene$t is eKual to /-,--- +/1,--- Y /1,---. Answer +a is incorrect ecause it ignores the interest sa)ings. Answer + is incorrect ecause it only considers the an& charge. Question No. 11 >EAS@' Dappy, Inc. opens a sales agency in !a)ao City, and a wor&ing fund for /2-,--- is estalished on an imprest asis. "he $rst payment from the fund is /=,--- for rent. Which of the following entry should the Dappy Inc. record in its oo&s for the payment of rent? a. 9o entry . !r. 4ent =,--Cr. Cash =,--c. !r. !a)ao Agency =,--Cr. Cash =,--d. !r. !a)ao Agency =,--Cr. Wor&ing :und =,--Answer: A  "he expense incurred will e recorded on the agency>s oo&s. Lntries will e recorded only in the home o*ce>s oo&s upon estalishment and replenishment of the agency>s wor&ing funds. Question No. 12 >A7ERAE'  "he memorandum records of 8mile Inc. for its de$ned ene$t plan show the following alances' /lant asset, FF2-1 !e$ned ene$t oligation, FF2-1 2-1 Information' Current ser)ice cost (ar&et yields on go)ernment onds at year5end Contriutions made Bene$ts paid /ast ser)ice cost as a result of plan amendment /lan asset, 2F=F2-1 !e$ned ene$t oligation, 2F=F2-1 /hp1,---,--1,2--,--01-,--- /hp,<--,--<-,--2,=--,--<,---,--<,=1-,---  "he fair )alue of the plan asset at year5end includes the unpaid contriutions due from 8mile Inc., to the fund as well as the non5transferale :N/ issued y 8mile Inc. and held y the fund amounting to /hp0--,--- and /hp=--,--respecti)ely. !etermine the amount recognized in pro$t or loss in accordance with /A8 ; 3m!lo/ee ene4ts ANSWER: P!3,0"0,000 Current ser)ice cost /hp01-,-- 9et interest expense +/1,2--,---5 1,---,--- x - /ast ser)ice cost as a result of plan amendment  "otal amount recognized in pro$t or loss 2-,--2,=--,--/hp=,-0-,-- Question No. 13 +W Identify the term that does not elong to the group' prescription, performance, presentation, merger. Answer' presentation Question No. 14 >A7ERAE'  "he following amounts were ta&en from the statement of aRairs for Bagsi& Company' Unsecured liailities without priority 8toc&holdersQ eKuity oss on realization of assets Lstimated administrati)e expenses that ha)e not een entered in the accounting records Unsecured liailities with priority /hp;-,--=@,--1,--,1--,--- Dow much is the estimated payment for the unsecured liailities without priority? Answer: P"#,500  "otal liailities +;-,---J-,--- 8toc&holders> eKuity  "otal assets oss on realization of assets Administrati)e expenses /ayment to unsecured liailities with priority 9ew capital /--,--=@,--2@,--+1,--- +,1-- +-,--- /0@,1-- Question No. 15 >%I66I(9;' If e)erything else remains constant and a $rm increases its cash con)ersion cycle, which of the following will most li&ely to happen to the $rm>s pro$taility? A. B. C. !. Increase Increase if earnings are positi)e !ecrease 9ot e aRected. Answer' ( Cash con)ersion cycle is the period from which in)entory is recei)ed and processed +age of in)entory, sold to outside party +age of recei)ale and e)entually paid +age of accounts payale. Answer +c is correct ecause the longer the cash con)ersion cycle the greater the amount of time from when a ]$rm pays its suppliers to the time it ultimately collects recei)ales. "he greater the time frame the more li&ely the $rm will ha)e to orrow funds and incur interest expense which reduces pro$taility. Answers +a, +, and +d are incorrect ecause the incurrence of interest will reduce pro$taility. Question No. 1# >A7ERAE' An auditor is conducting a sur)ey of perceptions and eliefs of employees concerning an organization>s health5care plan. "he est approach to selecting a sample would e to' a :ocus on people who are li&ely to respond so that a larger sample can e otained.  :ocus on managers and super)isors ecause they can also reVect the opinions of the people in their departments. c Use strati$ed sampling where the strata are de$ned y marital and family status, age, and salaried or hourly status. d Use monetary5unit sampling according to employee salaries. So$ution: ( a Incorrect. "his con)enience sample is li&ely to emphasize people with lots of a)ailale time at the expense of &ey employees who are too usy with company wor& to respond.  Incorrect. (anagers and super)isors often do not ha)e the same needs and perceptions as their suordinates and also may mispercei)e their )iews. )' (orre)t. Be)ause &iCerent e+!$oyees !roa$y a/e &iCerent situations, nee&s, an& e!erien)es, strati?e& sa+!$in wou$& est ensure tat a re!resentati/e sa+!$e wou$& resu$t. d Incorrect. "his approach would produce a disproportionate numer of highly paid employees who may not ha)e the same needs as lower5paid employees. Question No. 1" >%I66I(9;' A manufacturer gi)es warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale the manufacturer underta&es to ma&e good, y repair or replacement, manufacturing defects that ecome apparent within one year from the date of sale. n the asis of experience, it is proale that there will e some claims under the warranties. 8ales of /hp-,---,--- were made e)enly throughout 2-1. At !ecemer =, 2-1 the expenditures for warranty repairs and replacements for the product sold in 2-1 are expected to e made 1- percent in 2-1 and 1- percent in 2-@. Assume for simplicity that all the 2-@ outVows of economic ene$ts related to the warranty repairs and replacements ta&e place on Sune =-, 2-@. Lxperience indicates that ;1 percent of products reKuire no warranty repairs, = percent of products sold reKuire minor repairs costing percent of sales price3 and 2 percent of products sold reKuire ma%or repairs and replacement costing ;- percent of sales price. "here is no reason to elie)e future warranty claims will e diRerent from its experience. At !ecemer =, 2-1 the discount rate for expected cash Vows is -.21 percent for 2-@. :urthermore, an appropriate ris& ad%ustment factor to reVect uncertainties in the cash Vow estimates is an increment of @ percent. n !ecemer =, 2-1, the entity recognizes a warranty pro)ision measured at' ANSWER: P!10#,000 Lxpected cash Vow' (inor repairs /-,---,--- x += x - (a%or repairs and replacement /-,---,--- x +2 x ;-  "otal  "o e paid in 2-@ +2-,--- x 1- 4is& ad%usted amount +-1,--- x -@ /N factor EF+J-.-21^+@F2G Warranty /ro)ision +,=-- x -.;12 /hp=-,--<-,--2-,---1,--,=--.;12 /hp-@,--- Question No. 1 >A7ERAE' :or So rder 9o. =@;, Lscalera Company incurred the following costs for the manufacture of 2-- units of a no)elty gadget' riginal cost accumulation' !irect materials !irect laor :actory o)erhead +1- of direct laor  "otal !irect costs of ten rewor&ed units' /=,2@,--2,--/1=,2- !irect materials !irect laor  "otal /2,--=,2-/1,2--  "he rewor& cost was attriutale to exacting speci$cations reKuired y the %o and was charged to the speci$c order. "he units cost of So rder 9o. =@; is' Answer: P31#  "otal Cost efore 4ewor& !irect cost of 4ewor& !( ! :D +=,2--x1-  "otal Cost !i)ide y' 9umer of units Unit cost /1=,2-2,--=,2-,<-@=,2-2-/=@ Question No. 1- >%I66I(9;' Caine, sman, and 4oerts formed a partnership on Sanuary , 2-2, agreeing to distriute pro$ts and losses in the ratio of original capitals. riginal in)estments were /@21,---, /21-,--and /21,--- respecti)ely. Larnings of the $rm and drawings y each partner for the period 2-252- follows' 2-2 2-= 2- 9et income +loss /hp-,--<1,--+-1,--- !rawings sman Caine /hp1-,--1-,----,--- /hp0<,--0<,--12,--- 4oerts /hp12,--12,--12,--- At the eginning of 2-1, Caine and sman agreed to permit 4oerts to withdraw from the partnership. 8ince the oo&s for the partnership had ne)er een audited, the partners agreed to an audit in arri)ing at the settlement amount. In withdrawing, 4oerts was allowed to ta&e certain furniture and was charged /1,---, although the oo& )alue was /1,---3 the alance of 4oerts> interest was paid in cash.  "he following items were re)ealed in the course of the audit. Lnd of 2-2 Understatement of accrued expenses Understatement of accrued /hp,--2,1-- Lnd of   Lnd of 2- 2-= /hp1,--/hp@,1-,--- ,1-- re)enue )erstatement of in)entories Understatement of depreciation expense on assets still held 1,--- 2-,--- 2-,--- ,1-- =,1-- 2,--- Dow much must 4oerts recei)ed from the partnership? Answer: P11,250  "otal income +-,---J<1,---5-1,--- Ad%ustment +5@,1--J,1--52-,---5,1--5=,1--52,--- Ad%usted total net income (ultiplied y the /F percentage 8hare in net income riginal in)estment  "otal withdrawal +12,--- x = 8hare on the impairment of the furniture +1,---5 1,--- x 2.1- :air )alue of the furniture Cash recei)ed y 4oerts from the partnership /12-,-+=2,--- <<,--2.1- @,--21,--+1@,-- +=,01- +1,--- /,21- Question No. 20 >A7ERAE' A chief audit executi)e +CAL suspects that se)eral employees ha)e used des&top computers for personal gain. In conducting an in)estigation, the primary reason that the CAL chose to engage a forensic information systems auditor rather than using the organization>s information systems auditor is that a forensic information systems auditor would possess' a Tnowledge of the computing system that would enale a more comprehensi)e assessment of the computer use and ause.  Tnowledge of what constitutes e)idence acceptale in a court of law. c 8uperior analytical s&ills that would facilitate the identi$cation of computer ause. d 8uperior documentation and organization s&ills that would facilitate in the presentation of $ndings to senior management and the oard. So$ution: B a Incorrect. "he organization>s information systems auditor would proaly ha)e more &nowledge of the organization>s computing systems. ' (orre)t. ;e &istinuisin )ara)teristi) o orensi) au&itin is te now$e&e nee&e& to testiy as an e!ert witness in a )ourt o $aw. A$tou a orensi) au&itor +ay !ossess te oter attriutes $iste&, te oraniDations inor+ation syste+s au&itor +ay a$so !ossess tese si$$s or now$e&e e$e+ents. c Incorrect. A forensic auditor would not necessarily ha)e analytical or organizational s&ills that are superior to those of the organization>s auditor. d Incorrect. 8ee answer 6c7. Question No. 21 >EAS@' Which of the following is encouraged y /A8 , Agriculture to e separately disclosed when there is a production cycle of more than one year for a iological asset? A /hysical change only . B /rice change only . C  "otal change in )alue . ! /hysical change and price change . Answer: % /aragraph 1 of /A8  Agriculture states that the fair )alue less costs to sell of a iological asset can change due to oth physical change and price change in the mar&et. 8eparate 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, y group or otherwise, the amount of change in fair )alue less costs to sell included in pro$t or loss due to physical changes and due to price changes. "his information is generally less useful when the production cycle is less than one year +for example, when raising chic&ens or growing cereal crops. Question No. 22 >EAS@' n estate taxation, a statement duly certi$ed y a C/A is necessary if the estate tax return shows a gross )alue exceeding /__________  a. . c. d. /,1--,--/2,---,--/2,1--,--/=,---,--- ANSWER: B BASIS: 8ection ;-+A+= of the "ax Code, as amended Question No. 23 >EAS@' WIL Company reported current assets of /=,;--,--- and current liailities of /2,---,--- on its statement of $nancial position as of !ecemer =, 2-. "he following items may ha)e een recorded incorrectly. "he company uses the periodic in)entory system. a. oods purchased costing /22-,--- were shipped :B shipping point y a )endor on !ecemer 2@, 2-. WIL recei)ed and recorded the in)oice on !ecemer 2;, 2-, ut the goods were not included in WIL>s physical count of in)entory ecause they were not recei)ed until Sanuary , 2-1. . n !ecemer =, 2-=, WIL purchased and recei)ed goods for /01-,---. oods were shipped :B seller. "he in)oice was recorded and paid Sanuary 2-. oods are still unsold and were included in the physical count as of the reporting date. c. oods purchased costing /2--,--- were shipped :B destination y a supplier on !ecemer 2<, 2-. WIL recei)ed and recorded the in)oice on !ecemer =, 2-, ut the goods were not included in WIL>s 2- physical count of in)entory ecause they were not recei)ed until Sanuary 2, 2-1. d. oods held on consignment from Sason Company were included in WIL>s !ecemer =, 2-, physical count of in)entory at /=-,---. What is the wor&ing capital ased on WIL>s statement of $nancial position? Answer: P1,-00,000 Question No. 24 >A7ERAE' +W !etermine the false statement. ! a !onations etween spouses during marriage are )oid3 this rule applies to . persons 6li)ing5in7 without the ene$t of a legal marriage and persons  . c . d . guilty of adultery or concuinage. A conditional promise to pay renders an instrument to e non5negotiale while a negotiale instrument issued, accepted or endorsed when o)erdue is considered to e payale on demand. Consignment of goods is essentially an agency contract3 insol)ency of the consignor results in the extinguishment of the agency. A pledge must e in a pulic instrument showing a description of  the thing pledged and the date of the pledge to ind third persons3 a real mortgage must e registered and accompanied y an a*da)it of good faith to ta&e eRect against third persons. Question No. 25 >EAS@' A company has six million ordinary shares in issue at the eginning of Pear . At the )ery end of the third Kuarter of Pear 2 it announces a rights issue wherey all existing shareholders will e entitled to uy one share for e)ery four they hold, at a price of =-. Immediately prior to the issue, the share price was 1-. "he pro$ts for year , 2 and = were 221 million, 2=- million and 21 million, respecti)ely. "he rights were exercised immediately upon issuance. What is the +restated asic earnings per share for year 2? Answer: P33.-- Question No. 2# >EAS@' /A8 2 reKuires disclosure of compensation of &ey management personnel. Which of the following would not e considered #compensation# for this purpose? A 8hort5term ene$ts . B 8hare5ased payments . C  "ermination ene$ts . ! 4eimursement of out5of5poc&et expenses . Answer: % As enumerated in /A8 2, Related Part/ isclosures paragraph ;, compensation includes' a short5term employee ene$ts, such as wages, salaries and social security contriutions, paid annual lea)e and paid sic& lea)e, pro$t5 sharing and onuses +if payale within twel)e months of the end of the period and non5monetary ene$ts +such as medical care, housing, cars and free or susidised goods or ser)ices for current employees3  post5employment ene$ts such as pensions, other retirement ene$ts, post5employment life insurance and post5employment medical care3 c other long5term employee ene$ts, including long5ser)ice lea)e or saatical lea)e, %uilee or other long5ser)ice ene$ts, long5term disaility ene$ts and, if they are not payale wholly within twel)e months after the end of the period, pro$t5sharing, onuses and deferred compensation3 d termination ene$ts3 and e share5ased payment. 4eimursement of out5of5poc&et expenses is not included. Question No. 2" >%I66I(9;' What is the ceiling on entertainment, amusement and recreation +LA4 expense? a. -.1- percent + of net sales taxpayers engaged in sale of goods or properties3 or .-- percent + of net re)enue for taxpayers engaged in sale of ser)ices, including exercise of profession and use or lease of properties. . .-- percent + of net sales taxpayers engaged in sale of goods or properties3 or -.1- percent + of net re)enue for taxpayers engaged in sale of ser)ices, including exercise of profession and use or lease of properties. c. -.1- percent + of net sales for taxpayers engaged in sale of goods or properties3 or .-- percent + of net re)enue for taxpayers engaged in sale of ser)ices, excluding exercise of profession and use or lease of properties. d. -.1- percent + of net re)enue for taxpayers engaged in sale of goods or properties3 or .-- percent + of net sales for taxpayers engaged in sale of ser)ices, including exercise of profession and use or lease of properties.  Answer: A Section 5 o$ Re6enue Regulations #o )0+"00" !ro6ides t-e ceiling on entertainment, amusement and recreation (3AR* ex!ense: 7S3&TI8# 5 &eiling on 3ntertainment, Amusement, and Recreation 3x!ense 9 T-ere s-all be allo.ed a deduction $rom gross income $or entertainment, amusement and recreation ex!ense, as de4ned in Section " o$ t-ese Regulations, in an amount eui6alent to t-e actual entertainment, amusement and recreation ex!ense !aid or incurred .it-in t-e taxable /ear b/ t-e tax!a/er, but in no case s-all suc- deduction exceed 050 !ercent (2* o$ net sales (ie, gross sales less sales returns;allo.ances and sales discounts* $or tax!a/ers engaged in sale o$ goods or !ro!erties< or )00  !ercent (2* o$ net re6enue (ie, gross re6enue less discounts* $or tax!a/ers engaged in sale o$ ser6ices, including exercise o$ !ro$ession and use or lease o$ !ro!erties=  Question No. 2 >EAS@'  "he use of an analytical re)iew to )erify the correctness of )arious operating expenses would not e a preferred approach if' a An auditor notes strong indicators of a speci$c fraud in)ol)ing these accounts.  perations are relati)ely stale and ha)e not changed much o)er the past year. c An auditor would li&e to identify large, unusual, or non5recurring transactions during the year. d perating expenses )ary in relation to other operating expenses, ut not in relation to re)enue. So$ution: A a' (orre)t. I te au&itor a$rea&y sus!e)ts rau&, a +ore &ire)te& au&it a!!roa) wou$& e a!!ro!riate.  Incorrect. 4elati)ely stale operating data is a good scenario for using analytical re)iew. c Incorrect. Analytical re)iew would e useful in identifying whether large, non5 recurring, or unusual transactions occurred. d Incorrect. Analytical re)iew only needs to ha)e accounts related to other accounts or other independent data. It does not reKuire that they e related to re)enue. Question No. 2- >EAS@' n Sanuary , 2-, Applied Co. acKuired -, /( onds for /;1,;@=. "he principal is due on Sanuary , 2-0 ut interest is due annually starting !ecemer =, 2-. "he yield rate on the onds is 2. "he entity adopts the calendar year reporting. Applied Co. prepares and pulishes Kuarterly reports in accordance with /A8 = Y Interim :inancial 4eporting as reKuired y 8LC. In August , 2-1, ABC Co. changed its usiness model. It was ascertained that the in)estment in onds at amortized cost should e reclassi$ed to held for trading securities on reclassi$cation date. n ctoer  to !ecemer =, 2-1, the onds were Kuoted at -=. n Sanuary , 2-@, the onds were Kuoted at -. Assume that Applied Co. early adopted PFRS  > Financial Instruments   last 2-=. !etermine the reclassi$cation date. Answer: 8)toer 1, 2015 Question No. 30 >EAS@' In which of the following will an entity not record impairment loss? (c-oose one or  more* Answer: S)enarios 1, 2 an& 4 on$y Question No. 31 >A7ERAE' ABC Company has a uilding that it occupies as o*ce space. !uring the year, ABC Company decided to lease out the uilding to third party. ConseKuently, the uilding is carried in ABC Company>s oo&s from costs to fair )alue. Dow should ABC Company account for the resulting increase in carrying amount of the uilding? A  "he increase is recognized in other comprehensi)e income to the extent that . the increase re)erses a pre)ious impairment loss. B  "he increase is recognized as part of other comprehensi)e income or . re)aluation surplus within eKuity, if no pre)ious impairment has een recorded. C  "he increase is recognized directly to pro$t or loss. . ! 9one of the ao)e. . Answer: B /aragraph @2 of /A8 -, In6estment Pro!ert/   "4A98:L48 Up to the date when an owner5occupied property ecomes an in)estment property carried at fair )alue, an entity depreciates the property and recognizes any impairment losses that ha)e occurred.  "he entity treats any diRerence at that date etween the carrying amount of the property in accordance with /A8 @ and its fair )alue in the same way as a re)aluation in accordance with /A8 @. In other words' +a any resulting decrease in the carrying amount of the property is recognized in pro$t or loss. Dowe)er, to the extent that an amount is included in re)aluation surplus for that property, the decrease is recognised in other comprehensi)e income and reduces the re)aluation surplus within eKuity. + any resu$tin in)rease in te )arryin a+ount is treate& as o$$ows: +i to the etent tat te in)rease re/erses a !re/ious i+!air+ent $oss or tat !ro!erty, te in)rease is re)oniDe& in !ro?t or $oss. "he amount recognized in pro$t or loss does not exceed the amount needed to restore the carrying amount to the carrying amount that would ha)e een determined +net of depreciation had no impairment loss een recognized. +ii any re+ainin !art o te in)rease is re)oniDe& in oter )o+!reensi/e in)o+e an& in)reases te re/a$uation sur!$us witin e*uity. n suseKuent disposal of the in)estment property, the re)aluation surplus included in eKuity may e transferred to retained earnings. "he transfer from re)aluation surplus to retained earnings is not made through pro$t or loss. Question No. 32 >A7ERAE' At the eginning of the year entity D in)ests /1 million to acKuire a =- eKuity interest in an associate, entity A. In addition, D lends /; million to the associate, ut does not pro)ide any guarantees or commit itself to pro)ide further funding. DQs loan to A is considered part of the net in)estment in the associate. Assume the associate generated a /2- million loss during the year. !etermine the eKuity interest in the associate and the loan carrying )alue. Answer: P0 F P+i$$ion Question No. 33 >%I66I(9;' 8ummary ad%usted trial alance for the home o*ce and ranch of "S Corporation at !ecemer =, 2- are as follows' Dome o*ce !eits' ther assets In)entories, Sanuary , 2- Branch /urchases 8hipments from home o*ce Lxpenses !i)idends  "otal deits Credits' ther liailities Capital stoc& 4etained earnings Dome o*ce Unrealized pro$t in ranch in)entory F loading 8ales 8hipments to ranch Branch pro$t  "otal credits /1=-,--1-,--2--,--1--,--5 2-,----,--/,1--,-/ ;-,--1--,----,--5 -,--1=0,1-2--,--@2,1-/,1--,-- Branch /@1,--1,--5 5 2-,--1-,--5 / 1--,--- / 21,--5 5 01,--- 5 =--,--5 _______   / 1--,--- Additional information' . "he home o*ce ships merchandise to its ranch at 2- of home o*ce cost. 2. In)entories at !ecemer =, 2- are /0-,--- for the home o*ce and /@-,--- for the ranch. "he ranch in)entory is at transfer prices. Dow much is the net income of the home o*ce and the ranch +own oo&s and in the home o*ce>s oo&s for the year ended !ecemer =, 2-? Answer: P13",500F P#2,500 Dome o*ce' 8ales Cost of sales +1-,---J1--,---52--,---50-,--- Lxpenses 9et income Branch 8ales Cost of sales +1,---J2-,---5@-,--- Lxpenses 9et income, per ranch>s oo&s 4ealized pro$t +221,--- x 2-F2- 9et income, per home o*ce>s oo&s /1=0,1+2<-,-- +2-,-- /=0,1/=--,-+221,-- +1-,--- 21,--=0,1-/@2,1-- Question No. 34 >%I66I(9;' 8arah Company, a manufacturing entity, owns 01 of the ordinary shares of 8andra Company, an in)estment entity. 8andra Company owns @- of the ordinary shares of Nanessa Company, an insurance entity. 8andra Company has control o)er Nanessa Company. In 8arah Company>s consolidated $nancial statements, should consolidation accounting or eKuity method e used for 8andra Company and Nanessa Company? A . B . C . ! . Consolidation used for 8andra and eKuity method used for Nanessa. Consolidation used for oth 8andra and Nanessa LKuity method used for 8andra and consolidation used for Nanessa LKuity method used for oth 8andra and Nanessa Answer: B 8arah should use consolidation for oth 8andra and Nanessa. 8arah has a controlling $nancial interest in 8andra through a 01 direct ownership.  "he intercorporate stoc& ownership of 8arah with respect to Nanessa is 1. 8andra owns @- of Nanessa and 8arah owns 01 of 8andra. "hus, indirectly, 8arah owns 1 of Nanessa +01 x @-. :urther, 8andra controls Nanessa. Question No. 35 >A7ERAE' Lntity  acKuires Lntity D and as part of the arrangement, Lntity  agrees to pay an additional amount of consideration to the seller in the future, as follows' if the 2 month earnings in two yearsQ time +also referred to as the trailing 2 months are / million or less Y nothing will e paid. if the trailing 2 monthsQ earnings in two yearsQ time are etween / million and /2 million Y 2 [ 2 month earnings will e paid. if the trailing 2 monthsQ earnings in two yearsQ time is greater than /2 million Y = [ 2 month earnings will e paid. • • • At the date of acKuisition, the possile twel)e5month earnings of Lntity D in two yearsQ time are determined to e, as follows' • • • /-.< million Y - /.1 million Y - /2.1 million Y 2- Applying IFRS )% > Fair Value Measurement,   determine the amount to e discounted at the date of acKuisition to determine its fair )alue.  Answer: P2.7 million Question No. 3# >%I66I(9;' (r. Lddard 8tar&, a resident citizen, died during the year lea)ing the following' ross estate / 1,---,--:amily home ,1--,--:uneral expenses =--,-- Sudicial expenses 1--,--(edical expenses @--,--Claims against the estate 2--,-- "axes 21,--osses 1,--Nanishing deduction =-,--8tandard deduction ,---,--9et share of the sur)i)ing spouse in the con%ugalFcommunity estate <--,--Amounts recei)ale under 4epulic Act ;0 2-,--Dow much are the ordinary and special deductions from the gross estate, respecti)ely? a. . c. d. /;-,--- and /2,11-,--/;-,--- and /2,@1-,--/;;-,--- and /2,11-,--/;;-,--- and /2,@1-,--- ANSWER: A 8olution' rdinary 8pecial :amily home +(aximum amount / ,---,--:uneral +(aximum amount / 2--,-- Sudicial expenses 1--,--(edical expenses +(aximum amount 1--,--Claims against the estate 2--,-- "axes 21,--osses 1,--Nanishing deduction =-,--8tandard deduction ,---,--Amounts recei)ale under 4epulic Act ;0 2-,-- "otal P -40,000 P 2,550,000 Question No. 3" +W A newly organized corporation issues -,--- no5par shares with an issue price of / 1-.--. Dow much is the reKuired minimum paid5in capital? Answer' / 21,--Question No. 3 >%I66I(9;' rey Worm Company, a NA" registered entity, purchased in the eginning of  CP 2-, a deli)ery from a NA"5registered dealer of automoiles. !ue to recent Vooding, the only recordFdocument a)ailale related to the said purchase was an o*cial receipt with an amount of / ,1,12- +inclusi)e of  NA" of / 2=,<-. Dow much would e the depreciation expense that can e claimed as deductile expense in CP 2- if the eKuipment has useful life of  years? a. / 2<<,;@. / 21;,--c. / 2<@,=%I66I(9;' 4i)erlands Corporation, a NA"5registered entity, is engaged in the usiness of  selling oo&s, school supplies and no)elty items. "he following were ta&en from the records of the Company' 8ale of school supplies Y !omestic 8ale of school supplies Y Lxport +in U8! 2<,--- 8ale of oo&s Y !omestic 8ale of no)elty items Y !omestic /urchases of oo&s /urchases of school supplies and no)elty items /urchase of computer +used in all transactions / 1@-,--,2-,--12-,--@-,----,--,1-,--<-,--- Compute for the NA" payaleF+)erpayment. a. . c. d. +/@<,@- +/@-,<1< /,2 9one of the ao)e Answer: A. >P#,1#0' utput tax on sale of school supplies 5 !omestic +1@-,---H2 utput tax on sale of school supplies 5 Lxport +1@-,---H- utput tax on sale of no)elty items +@-,---H2  "otal ess' Input taxes n purchases of school supplies and no)elty items +,1-,---H2   @0,25   ;,2 +=<,-- n purchase of computer E<-,---H2H+,<-,---F2,--,---G   +@,1@ - 7A; !aya$eG>8/er!ay+ent'   >#,1 #0' Based on 8ection -; +4 of the "ax Code, sale of oo&s is a NA" exempt transaction. Dence, it is not su%ect to output NA". :urthermore, the related input NA" on the purchases is not creditale. Question No. 40 >%I66I(9;' 8torm>s Lnd Corporation, organized in 2--, was engaged in a large5scale distriution of poultry products. :or the taxale year 2-1, the company reported the following result of operations' 8ales /=.2 million 8ales discounts -.2 million Beginning in)entory .< million Cost of goods a)ailale for sale =.- million Lnding in)entory .- million perating expenses -.0 million eneral and administrati)e expenses -.= million  "he company opted to use optional standard deduction in $ling its st Kuarter income tax return. Dow much is the Company>s income tax?  Answer: P20,000   P%" million 0" million P%0 million Sales 'ess: Sales discounts #et sales 'ess: &ost o$ Sales &ost o$ goods a6ailable $or sale 'ess: 3nding in6entor/  Gross income 'ess: 8S (?02* P%0 million )0 million "0 million P )0 million 0?0 million Taxable income Tax rate Tax due (8S* M&IT ("2* P 0@0 million %02 P)0,000 P"0,000 Income tax due (lo.er* P20,000 Question No. 41 >A7ERAE' Candice Company reported net income of /=,--- for the year ended !ecemer =, 2-= which included depreciation expense of /<,-- and a gain on sale of eKuipment of /,0--. "he eKuipment had an historical cost of /-,--- and accumulated depreciation of /2,---. Lach of the following accounts increased during 2-= +Assume that the increases in the following accounts are due to cash transactions only.' /atent /;,<-/repaid rentH ,1-A)ailale for sale in)estment <,--/roperty and plant +)ehicle held for rentalHH @,--Bonds payale 1,--HTo be consumed .it-in )" mont-s $rom t-e balance s-eet date BB Cill be subseuentl/ -eld $or sale What amount should e reported as net cash pro)ided +used y in)esting acti)ities for the year ended !ecemer =, 2-=?  Answer: (P100) Question No. 42 >A7ERAE' n Sanuary , 2--; an entity in)ested / million in a loan with a par )alue of / million. "he loan pays interest stated at 0.1 on !ecemer = annually in arrears and is to e redeemed at par on !ecemer =, 2-<. "he entity accounts for the loan at amortised cost. n Sanuary , 2- it unconditionally sells the right to recei)e the remaining $)e interest payments to a an&. "he derecognition pro)isions of IA8 =; +I:48 ; are applied to the interest payments as an identi$ale part of the asset, leading to the conclusion that they are reKuired to e derecognized. n the same date, the current mar&et interest rate a)ailale to the orrower is 1. !etermine the gain +loss on derecognition of part of a $nancial asset, if any.  Answer: P31,713 Question No. 43 +W A corporation organized for usiness or pro$t is called Ci)il Corporation while one which is organized for pulic charity is called ___________. Answer' Lleemosynary Corporation 9"L' incorrect spelling shall e considered wrong. Question No. 44 >%I66I(9;' An entity plans to dispose of a group of its assets +as an asset sale. "he assets form a disposal group, and are measured as follows' Carrying amount efore reclassi$cation as held for sale oodwill //L +carried at re)alued amount //L +carried at cost In)entory In)estment in eKuity securities  "otal / ,1--,--,@--,--- Carrying amount as re5measured immediately efore reclassi$cation as held for sale / ,1--,--,---,--- 1,0--,--2,--,--,<--,--- 1,0--,--2,2--,--,1--,--- /@,---,--- /,;--,---  "he entity measures the fair )alue less costs to sell of the disposal group as /=,---,---. !etermine the carrying amount of the //L +carried at re)alued amount after classifying the group as held for sale. (Round o1 amounts in nearest !eso* . /=,<<-,1;0 c. /,2,=< d. / 55-55 a. P3,35,052 Question No. 45 >%I66I(9;' What is in the scope or aRected y I:48 1? I. II. III. IN. N. NI. NII. Contracts with customers 8ale of non5$nancial assets that are not an output of the entity>s ordinary acti)ities +e.g., //L, intangile assets easing contracts Insurance contracts :inancial instruments and certain other contracts Certain non5monetary exchanges Certain put options on sale and repurchase agreement Answer: I an& II on$y If with choices a. I only . I an& II on$y d. I, N, NI and NII only c. I, III, IN and NI only Question No. 4# >%I66I(9;' A lessee is reKuired to pay a refundale deposit of /--,--- to the lessor at the inception of an operating lease for which no interest is recei)ale. "he $xed lease term is - years. "he mar&et interest rate is 1 +i.e., that is the interest rate the lessor would ha)e to pay if he orrowed /--,--- for a - year term from a third party. "he date of inception is :eruary , 2-=. Assuming the annual lease payment is /@-,---, determine the net amount recognized in lessee>s pro$t or loss as of !ecemer =, 2- applying PAS )D > 'eases and Financial instruments standards . (Round PV $actors to ? decimal !laces*  Answer: P60,61 !e"re#se Question No. 4" >%I66I(9;' At the end of Sanuary 2-=, the city go)ernment pro)ided 8U9SI Company a zero interest /=-,---,--- =5year loan used y the Company in acKuiring a uilding on the same date. "he pre)ailing mar&et rate of interest for this type of loan is <. "he go)ernment imposes that the uilding must e used for social housing for ten years.  "he Company estimated that there is reasonale assurance that it will meet the terms of the grant. "he Company will classify the uilding as owner occupied property after the socialized housing pro%ect. "he Company opted to use the cost model of  accounting the uilding with a 15year life from the date of acKuisition. Applying pro)isions of /A8 2- Y Accounting for o)ernment rants and !isclosures of  o)ernment Assistance, what is the amount recognized as income from the grant as of !ecemer =, 2-=? (Round PV $actors to ? decimal !laces*  Answer: P67,00 Question No. 4 +W A written contract of sale of a lot is made etween two parties for / 1-,---. "he lot is the only property of the seller who sold it to defraud a creditor. Assuming that the uyer is aware of the fraudulent intent of the seller, which term correctly descries that status of the contract of sale? Noid, Noidale, 4escissile, Unenforceale. Answer' 4escissile Question No. 4- >%I66I(9;' !uring 2-, a department>s =5)ariance o)erhead standard costing system reported unfa)orale spending and )olume )ariances. "he acti)ity le)el selected for allocating o)erhead to the product was ased on <- of practical capacity. If -- of practical capacity had een selected instead, how would the reported unfa)orale spending and )olume )ariances e aRected? A. B. C. !. 8pending Nariance Increased Increased Unchanged Unchanged Nolume Nariance Unchanged Increased Increased Unchaged Answer' (  "he reKuirement is to determine how unfa)orale spending and output le)el +)olume )ariances computed using the three5)ariance method would e aRected if the estimated acti)ity le)el were increased. An increase in the acti)ity le)el used to allocate o)erhead to the product will lower the standard $xed application rate +8:4. "he formula for computing the 8:4 is If the denominator in this formula is raised, the 8:4 is lowered. Dowe)er, an increase in acti)ity le)el used to allocate o)erhead will not aRect the standard )ariale application rate +8N4. "his rate is computed using the high5low method or regression analysis. "he diagram for the =5 )ariance method is When computing the standard )ariance, the 8N4 is used ut the 8:4 is not.  "herefore, this )ariance will not change with a change in acti)ity le)el. "he output le)el )ariance is computed y comparing the udgeted amount of total o)erhead costs for outputs achie)ed with the total amount of o)erhead applied. Both computations use 8N4, ut only the applied $gure uses the 8:4. In this prolem, the output le)el )ariance is unfa)orale indicating that the udgeted amount is more than the applied amount. When the 8:4 is lowered with the increase in acti)ity le)el, less cost will e applied for e)ery unit produced. "he output le)el )ariance will therefore e increased and ecome more unfa)orale. Question No. 50  Pou ha)e otained the latest actuarial report prepared for 8DU!5BL Corp>s pension plan. Information aout the actuarial reports are presented elow' From t-e ecember %), "0)5 actuarial re!ort