Easy Questions No.

1
Under a royalty agreement with another company, W and Co. will pay
royalties for the assignment of a patent for three years. When should the
company recognize the royalty payment as an expense?
A
.
B
.
C
.
D
.

In the period paid.

In the period incurred.

At the date the royalty agreement began.
At the date the royalty agreement expired.

Easy Questions No. 2

The following shall be considered as "de minimis" benefits not subject to
income tax as well as withholding tax on compensation income of both
managerial and rank and file employees, except:
a. Monetized value of vacation and sick leave credits paid to government
officials and employees
b. Monetized unused sick leave credits of private employees not exceeding ten
(10) days during the year
c. Medical cash allowance to dependents of employees, not exceeding P750 per
employee per semester or P125 per month;
d. Rice subsidy of P1,500 or one (1) sack of 50 kg. rice per month amounting to
not more than P1,500;

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

BASIS: Sec. 1 of RR No. 5-11 (Further amendments to RR Nos. 2-98 and
3-98, as last amended by RR No. 5-2008, with respect to "De Minimis
Benefits".
Easy Questions No. 3

Diamante Motors sells locally manufactured jeeps on installments. Information

presented below relates to Diamantes operations for the last three calendar years.
Cost of installment sales
Gross profit on installment sales
Outstanding installment recl,
Dec. 31:
From 2015
From 2014
From 2013

2015
P8,765,625
32%
P9,728, 125
3,025, 000

2014
P7,700,000
30%

2013
P4,950,000
28%

P8,387,500
1,512,500

P4,812,500

Diamante Motors uses the installment method of accounting.

How much is the total realized gross profit for calendar year 2015?

Answer: P3,044,250
From 2015 [(8,765,625/68%)9,728,125]*32%
From 2014 (8,387,500-3,025,000)*30%
From 2013 (1,512,500*28%)
Total

P1,012,000
1,608,750
423,500
P3,044,250

Easy Questions No. 4

The inventory on hand at December 31, 2015 for FLASH Company is valued
at a cost of Php947,800. The following items were not included in the
inventory amount:
a. Purchased goods in transit, shipped FOB destination invoice price
Php32,000 which included freight charges of Php1,600.
b. Goods held on consignment by FLASH Company at a sales price of
Php28,000, including sales commission of 20% of the sales price
c. Goods sold to ARROW Company, under terms FOB destination, invoiced
for Php18,500 which includes Php1,000 freight charges to deliver the
goods. Goods are in transit.
d. Purchased goods in transit, terms FOB shipping point, invoice price
P48,000 freight cost Php3,000.
e. Goods out on consignment to COCO Company, sales price hpP36,400.
Assuming that the Companys selling price is 140% of inventory cost, the
adjusted cost of Arrow Companys inventory at December 31, 2015 should
be:
ANSWER: Php1,037,500
Unadjusted balance
a. Goods in transit (P18,500-1,000)/140%
b. Purchased goods (P48,000+3,000)
c. Goods on consignment (36,400)/140%
Adjusted balance

Php947,80
0
12,500
51,000
26,000
Php1,037,3
00

Easy Questions No. 5

Which of the following is true in relation to law of diminishing marginal
utility?
A. Marginal utility will decline as a consumer acquires additional units of a
specific product.
B. Total utility will decline as a consumer acquires additional units of a
specific product.
C. Declining utilities causes the demand curve to slope upward.
D. Margin is excess of cost over sales.

Answer: A
The law states that marginal utility declines as consumers acquire
more of a good. Therefore, answer (a) is correct. Answer (b) is incorrect
because total utility will not decline as more of a good is acquired.
Answer (c) is incorrect because the demand curve slopes downward.
Easy Questions No. 6
(LW) Which of the followingterms is normally not associated
extinguishing an obligation through the process of novation?
D
a Expromission
.
b Subrogation
.
c Delegacion
.
d Remission
.

with

Easy Questions No. 7

Which of the following situations is most likely to be the subject of a written
interim report to the engagement client?
a) Seventy percent of the planned audit work has been completed with no
significant adverse observations.
b) The auditors have decided to substitute survey procedures for some of the
planned detailed review of certain records.
c) The engagement program has been expanded because of indications of
possible fraud.
d) Open burning at a subsidiary plant poses a prospective violation of pollution
regulations.

Solution: D

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

b) Incorrect. Changes in auditor methodology are not of particular importance to
the engagement client.
c) Incorrect. Indications of possible fraud would not be communicated to the
engagement client.
d) Correct. Such a situation would require immediate attention.

Easy Questions No. 8

Which of the following is the most likely strategy to reduce the breakeven
point?
A. Increase both the fixed costs and the contribution margin.
B. Decrease both the fixed costs and the contribution margin.

C. Decrease the fixed costs and increase the contribution margin.

D. Increase the fixed costs and decrease the contribution margin.

Answer: C
The short-cut breakeven point formula is calculated as follows:

Thus, by decreasing the numerator (fixed costs) and increasing the

denominator (contribution margin), the breakeven point will be
reduced.
Easy Questions No. 9
Minecraft Company quarries marble at two locations and sells it to be used in
construction of buildings. The Company provides for a depletion rate of 5%.
The quarry is leased on a year-to-year basis with the Company paying a
royalty of Php0.05 per ton of marble quarried. Other data relevant to the
requirements are:
Estimated total reserves, tons
Php60,000,000
Tons quarried through December 31, 2014
4,000,000
Tons quarried, 2014
1,600,000
Sales, 2014
1,200,000
How much would be the depletion for 2014 for financial reporting
purposes?
ANSWER: P-0Since the two quarries are merely leased and the Company pays a
Php0.05 royalty for every ton of marble quarried, Minecraft will not
recognize the quarries as assets in its books and will record only
royalty expense for leasing them. Hence, there is no depletion
expense.
Easy Questions No. 10

AAB Construction Company uses the percentage-of-completion method of

accounting. In 2014 AAB began work under contract #1348, which provided for a
contract price of P20,000,000. Other details follow:
Cost incurred during the year
Estimated costs to complete, as of December
31
Billing during the year
Collections during the year

2014
P3,000,000
12,000,000

2015
P15,750,000
-0-

3,600,000
2,500,000

15,400,000
15,500,000

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

Answer: P4,000,000
Cost incurred during the year
Total
estimated
(3,000,000+12,000,000)
Percentage of completion
Contract price
Revenue in 2014

costs

P3,000,000
15,000,000
20%
20,000,000
P4,000,000

Average Question No. 1

1. The manager of a production line has the authority to order and receive
replacement parts for all machinery that require periodic maintenance. The
internal auditor received an anonymous tip that the manager ordered
substantially more parts than were necessary from a family member in the parts
supply business. The unneeded parts were never delivered. Instead, the
manager processed receiving documents and charged the parts to machinery
maintenance accounts. The payments for the undelivered parts were sent to the
supplier, and the money was divided between the manager and the family
member.

Which of the following tests would best assist the auditor in deciding
whether to investigate this anonymous tip further?

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

activity.
b) Physical inventory testing of replacement parts for existence and valuation.
c) Analysis of repair parts charged to maintenance to review the reasonableness
of the number of items replaced.
d) Review of a test sample of parts invoices for proper authorization and receipt.

Solution: C

a) Incorrect. The current quarters expense would equal the prior periods
activity unless the manager just started this fraud. The auditor has no
information on how long this might have been occurring.
b) Incorrect. Physical testing would not locate nonexistent parts that have
already been charged to maintenance.
c) Correct. An analysis of repair parts charged to maintenance would
quantify the excessive number of items and detect that abuse may
be occurring.
d) Incorrect. Lack of segregation of duties allowed the fraud to occur. The
manager was authorized to process both the purchase and receipt, so the
test would only verify the fraudulent paperwork.

Average Question No. 2

(LW) Under the cumulative voting system of electing directors of a 5-member
board of a duly organized corporation, a stockholder owning 100 shares is
entitled to cast a total of
20 votes, distributed equally among 5 candidates that the stockholder
D
a.
wishes to elect

b.
c.
d.

100 votes, distributed equally among 5 candidates that the stockholder

wishes to elect
100 votes, all casted in favor of a single candidate that the stockholder
wishes to elect

500 votes, with majority of votes casted in favor a single

candidate and remaining votes distributed equally among 4 other
candidates that the stockholder wishes to elect

Average Question No. 3

The McGraw Company manufactures and sells Abriza handbags to assorted
prints. Data for 2014 follows:
Selling price per piece
Variable cost per piece
Number of handbags to breakeven
Net post-tax income (35% tax rate)

P8.00
P2.00
25,000
P5,850

In 2015, the company estimates that the selling price will be P9.50 per
piece, variable cost to manufacture will increase by 25%, and fixed costs
will increase by 20%. Income tax rate of 35% will not change.
How many units of handbags does McGraw Company must see in 2015 in
order to maintain the same net income after tax as in 2014?
Answer: 27,000 units
BEP in units =

Fixed Cost
(SP per unit - VC
per unit)

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

Fixed cost = 25,000 units * (P8 - P2)
P150,0
Fixed cost =
00

Contribution
Margin
Fixed cost
Net income
before tax
[(NI after tax /
35%)]
Income tax [35%
NI before tax]

CURREN
LAST YEAR
T YEAR
P189,00
P159,000
0 Squeezed
(150,000) (180,000)[P150,000 *120%]

9,000

9,000

(3,150)

(3,150)

Net income after

tax
Contribution
margin
New CM Rate
[(P9.5 - (P2 *
125%))]
Sales to meet last
year's net income

P5,850

P5,850

P189,0
00
P7
27,000
units

Average Question No. 4

An asset is sold in three different active markets at different prices. An entity enters
into transactions in all markets and can access the price of those markets for the
asset at the measurement date.
Market A
Price that would be received
Transaction costs in that market
Costs to transport the asset to
the market
Net amount that would be
received

Market C

Php26
(3)

Market
B
Php25
(1)

(2)

(2)

(2)

21

22

20

Php23
(1)

Assuming none of these markets is the principal market, which of the

three markets is the most advantageous market and what is the fair
value of the asset?
ANSWER: Market B and FV is Php23
Per PFRS 13, Fair Value Measurement, a fair value measurement
assumes that the transaction to sell the asset or transfer the liability
takes place either in the principal market of the asset or liability or in
the absence of a principal market, in the most advantageous market
for the asset.
The most advantageous market is the market that maximizes the
amount that would be received to sell the asset or minimizes the
amount paid to transfer the liability, after taking into account
transaction costs and transport costs. Thus, Market B is the most
advantageous market as it has the largest net amount that would be
received.

Fair value then is equal to Php23 which is the price that would be
received minus the costs to transport the asset to the market.

Average Question No. 5

On January 2, 2014, Keith Urban Corporation purchased 70% of the ordinary

shares
of
Mimi
Company
for
P 4,675,000. At that date, Mimi Company had P 4,887,500 of ordinary shares
outstanding and accumulated profits of P 1,572,500. Mimis equipment with a
remaining life of 5 years had a book value of P 2,380,000 and a fair value of P
2,550,000. Mimis remaining assets had a book value equal to their fair
values. All intangible assets except goodwill are expected to have remaining
lives of 10 years. Non-controlling interest shall be measured at fair value.
The income and dividend figures for both Keith Urban and Mimi Company are
as follows:
Income
Dividends
Keith
Urban 201
P
P
Corporation:
4
1,572,500
425,000
201
1,785,0
510,0
5
00
00
Income
Dividends
Mimi Company:
201
P
P
4
340,000
55,000
201
569,5
127,5
5
00
00
Keith Urbans income shown does not include any dividend income from Mimi.
Keith Urbans accumulated profits balance at the date of acquisition was P
5,958,500. Assume that Mimi has outstanding 6% P 100 par value cumulative
preference shares with an aggregate value of P 1,000,000 that are classified
as equity and are held by non-controlling interests. What is the income
attributable to parent on December 31, 2014?
Answer: P1,744,700

Average Question No. 6

Kings Landing Corporation has the following sales during the month:
Sales:
Sale to private entities subject to 12%
P 50,000
Sale to private entities subject to 0%
150,000
Sale of exempt goods
200,000
Total sales for the month
400,000
The following input taxes were passed on by its VAT suppliers:

Input tax:
Input tax on taxable goods
Input tax on zero-rated sales
Input tax on sale of exempt goods
Input tax on depreciable capital goods
not attributable to any specific activity
(pertains to monthly amortization for 60 months)

P5,000
3,000
2,000
20,000

How much is the creditable input tax for the month?

a.
b.
c.
d.

P21,750
P10,500
P32,000
P18,000

ANSWER: D
SOLUTION:
Input tax on sale subject to 12%
Input tax on zero-rated sale
Ratable portion of the input tax not
directly attributable to any activity:
Taxable sales (0% and 12%) X Amount of
Total Sales
input tax
not directly
attributable
200,000 X P20,000
400,000
Total creditable input tax for the month

P5,000
3,000

10,000
P18,000

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

Average Question No. 7
Which statement is incorrect?
A
.

B
.
C
.
D
.

To assess whether an internally generated intangible asset meets the criteria

for recognition, an entity classifies the generation of the asset into a research
phase and a development phase.
The cost of an internally generated asset comprises all directly attributable
costs necessary to create, produce and prepare the asset for its intended use.
Internally generated brands, mastheads, publishing titles, customer lists and
items similar in substance shall be recognized as intangible assets.
Internally generated goodwill shall not be recognized as an intangible asset.

Answer: C

PAS 38, Intangible Assets paragraph 63 states that internally generated

brands, mastheads, publishing titles, customer lists and items similar in
substance shall not be recognized as intangible assets.
Average Question No. 8
Spouses Ramsay and Sansa sold their family home, a capital asset for
P10,000,000. It was acquired in 1980 at P3,000,000. The fair market value as
determined by the BIR is P12,000,000 but the fair market shown in the
schedule of values of the City Assessor is P11,000,000. Later, the spouses
utilized P8,000,000 for the acquisition of their new family home. The capital
gains tax due is
a.
b.
c.
d.

P720,000
P576,000
P144,000
P120,000

ANSWER: C
Solution:
(12,000,000 x 6%) x (2,000,000/10,000,000) = P144,000

Average Question No. 9

The following are types of hedging relationships except?
A
.
B
.
C
.
D
.

Fair Value Hedge

Cash Flow Hedge

Hedge of a Net Investment in a Foreign Operation
Hedge of Foreign Currency Risk of a Firm Commitment

Answer: D
PAS 39, Financial Instruments: Recognition and Measurement, paragraph
86 provides that hedging relationships are of three types a sfollows:
a) fair value hedge: a hedge of the exposure to changes in fair value of a
recognised asset or liability or an unrecognised firm commitment, or an
identified portion of such an asset, liability or firm commitment, that is
attributable to a particular risk and could affect profit or loss.
b) cash flow hedge: a hedge of the exposure to variability in cash flows
that (i) is attributable to a particular risk associated with a recognised
asset or liability (such as all or some future interest payments on variable
rate debt) or a highly probable forecast transaction and (ii) could affect
profit or loss.
c) hedge of a net investment in a foreign operation as defined in PAS
21.

Average Question No. 10

A race track bettor won on the following bets:
On double, a bet of P200 and dividend of P100 per P10 ticket
On winner take all, a bet of P500 and a dividend of P700 per P50 ticket
On forecast, a bet of P1,000 and dividend of P150 per P50 ticket
The total percentage tax due from the winnings is
a. P2,060
b. P1,030
c. P802
d. P412
ANSWER: C
Solution:
On double {[(20010)x100] 200} x 4%
On winner take all {[(50050)x700] 500} x 10%
On forecast {[(1,00050)x150] 1,000} x 4%
Total percentage tax due

72
650
80

P 802

Difficult Question No. 1

What computer-assisted audit technique would an auditor use to identify a
fictitious or terminated employee?
a)
b)
c)
d)

Parallel simulation of payroll calculations.

Exception testing for payroll deductions.
Recalculations of net pay.
Tagging and tracing of payroll tax-rate changes.

Solution: B

a) Incorrect. In a parallel simulation, data that were processed by the

engagement clients system are reprocessed through the auditors program
to determine if the output obtained matches the output generated by the
clients system. This technique might identify problems with the clients
processing but would not identify a fictitious or terminated employee.
b) Correct. This type of computer-assisted audit technique (CAAT)
program can identify employees who have no deductions. This is
important because fictitious or terminated employees will generally
not have any deductions.
c) Incorrect. A CAAT program can recalculate amounts such as gross pay, net
pay, taxes and other deductions, and accumulated or used leave times.
These recalculations can help determine if the payroll program is operating
correctly or if employee files have been altered, but would not identify a
fictitious or terminated employee.
d) Incorrect. In this type of CAAT program, certain actual transactions are
tagged, and as they proceed through the system, a data file is created that

traces the processing through the system and permits an auditor to

subsequently review that processing. This would not, however, identify a
fictitious or terminated employee.

Difficult Question No. 2

Statement I: A corporation may be a partner in a partnership.
Statement II: A corporation may be a stockholder of another corporation.
Statement III: A limited partner may contribute money to a partnership but
not services.
A
a Only statement I is false
c Only statement III is false
.
.
b Only statement II is true
d All of the statements are true
.
.
Difficult Question No. 3
During 2014, Diana Corp. experienced the following power outages:
Number of
outages per
month
0
1
2
3

Number of
months
3
2
4
3
12

Each power outage results in an out-of-pocket costs of P400. For P500 per
month, Diana can lease an auxiliary generator to provide power during outages.
If Diana leases an auxiliary generator in 2015 the estimated savings (or
additional expenditures) for 2015 would be?

Answer: Php1,600 or Php1,600 savings

In 2014 Diana incurred the following costs due to power outages:
Number of outages
per month
0
1
2
3

x
x
x
x

Number of
months
3
2
4
3
12

19 outages x P 400/outage = P7,600

Number of
outages
0
2
8
9
19

The cost of leasing an auxiliary generator is only P6,000 (12 mos.

P500/mo). Therefore, Diana would be expected to save P1,600 (P7,600
P6,000) in 2015 by leasing the generator.
Difficult Question No. 4
On December 31, 2015, an entity has an asset of Php4,000 for interest
receivable that will be taxed when the cash is received in 2016. Tax is
payable at 20 percent on the first Php500,000 of taxable profit earned and
30 percent on any remainder. In 2015, the entity earned taxable profit of
Php450,000. In 2016, the entity expects to earn taxable profit of
Php550,000. What amount should the entity recognize for the deferred tax
liability relating to the interest receivable?
ANSWER: Php836
PAS 12 Income Taxes provides that when different tax rates apply to
different levels of taxable income, deferred tax assets and liabilities are
measured using the average rates that are expected to apply the
taxable profit (tax loss) of the periods in which the temporary
differences are expected to reverse.
Expected tax to be paid in 2016
(500,000 x 20% + 50,000 x
30%)

Php115,0
00

Expected average tax rate

(115,000/550,000)

20.91%

Deferred tax liability

(4,000 x 20.91%)

Php836

Difficult Question No. 5

Jon Snow Company had the following results of operations for the taxable
year 2015:
Gross Income
P500,000
Business expenses
P200,000
Capital Gain (capital asset held for one(1) year)
P 50,000
Capital Loss (capital asset held for 24 months)
P100,000
How much is the taxable income of John Snow Company for the year
2015?
Answer: P300,000
Solution:
Gross Income
Business expenses

P500,000
200,000

Net Income from operations

Capital Gain
Capital Loss
Net Capital Loss
Taxable Income

P300,000
P 50,000
(P100,000)
(50,000)

P300,000

Section 39(C) of the NIRC states that losses from sales or exchanges of
capital assets shall be allowed only to the extent of the gains from such
sales or exchanges.
Difficult Question No. 6
Sarah Company, a manufacturing entity, owns 75% of the ordinary shares of
Sandra Company, an investment entity. Sandra Company owns 60% of the
ordinary shares of Vanessa Company, an insurance entity. Sandra Company
has control over Vanessa Company. In Sarah Companys consolidated
financial statements, should consolidation accounting or equity method be
used for Sandra Company and Vanessa Company?
A
.
B
.
C
.
D
.

Consolidation used for Sandra and equity method used for Vanessa.
Consolidation used for both Sandra and Vanessa
Equity method used for Sandra and consolidation used for Vanessa
Equity method used for both Sandra and Vanessa

Answer: B
Sarah should use consolidation for both Sandra and Vanessa. Sarah has a
controlling financial interest in Sandra through a 75% direct ownership.
The intercorporate stock ownership of Sarah with respect to Vanessa is
45%. Sandra owns 60% of Vanessa and Sarah owns 75% of Sandra. Thus,
indirectly, Sarah owns 45% of Vanessa (75% x 60%). Further, Sandra
controls Vanessa.
Difficult Question No. 7
On April 1, 2014 a company engages in the development of a property,
which is expected to take five years to complete, at a cost of P6M. the
statements of financial position at December 31, 2013 and December 31,
2014, prior to capitalization of interest are as follows:
Development property
Other assets
Loans

12/31/13
P
6,000,000
P 6,000,000

12/31/14
P1,200,000
6,000,000
P7,200,000

5.5% debenture stock

Bank loan at 6% per
annum
Bank loan at 7% per
annum
Shareholders equity

P 2,500,000
-

P2,500,000
1,200,000

1,000,000

1,000,000

P 3,000,000

P4,700,000

2,500,000

2,500,000

The bank loan with effective interest rate at 6% was drawn down to match
the development expenditure on April 1, July 1, and October 1 2014. The
5.5% debenture stocks were irredeemable. Expenditure was incurred on the
development as follows: April 1 P600,000; July 1 P400,000; October 1
P200,000. If all the borrowing were general (i.e., the bank loan 6% was not
specific to the development) and would have been avoided but for the
development, then the amount of interest to be capitalized would be
(Round-off to 2 decimal % for the general borrowing rate)
Answer: P46,130

Difficult Question No. 8

Which of the following is not a source of obligation?
B
a Culpa Aquiliana
c Negotiorum Gestio
.
.
b Mora Accipendi
d Solutio Indebeti
.
.

Difficult Question No. 9

An audit committee is concerned that management is not addressing all
internal audit observations and recommendations. What should the audit
committee do to address this situation?

a) Require managers to provide detailed action plans with specific dates for
addressing audit observations and recommendations.
b) Require all managers to confirm when they have taken action.
c) Require the chief executive officer to report why action has not been taken.
d) Require the chief audit executive to establish procedures to monitor progress.

Solution: D

a) Incorrect. Management are responsible for ensuring action on all internal

audit observations and recommendations, but some actions may take time to
complete and it is not practical to expect that all will be resolved when an
audit committee meets.
b) Incorrect. See answer a.
c) Incorrect. See answer a.

d) Correct. The chief audit executive is responsible for establishing

appropriate procedures for monitoring the progress by management
on all internal audit observations and recommendations. This
responsibility should be written into its charter by the audit
committee, and progress should be reported at each audit
committee meeting.

Difficult Question No. 10

Cersei owns shares of stocks of Castle Black Corporation which she
purchased several years ago for P1 million. The stocks have a current fair
market value of P10 million. She donates one-half of the stocks to her
daughter Myrcella on December 31, 2014 and the remaining half to her
daughter Myrcella again on January 2, 2015 when the fair market value of
the stocks was P5 million.
Assuming Myrcella subsequently sold all the shares of stocks to Ellaria Sand
for P10 million, how much did Cersei gain on the sale?
a.
b.
c.
d.

P4 million
P5 million
P9 million
P10 million

Answer: C. P9 million
Solution: P10 million P1 million = P9 million

SEMI-FINAL ROUND
Question No. 1 (EASY)

1. Which of the following observations by an auditor is most likely to indicate

the existence of control weaknesses over safeguarding of assets?

I.

A service department's location is not well suited to allow adequate service to

other units.
Employees hired for sensitive positions are not subjected to background
checks.
Managers do not have access to reports that profile overall performance in
relation to other benchmarked organizations.
Management has not taken corrective action to resolve past engagement
observations related to inventory controls.

II.
III.
IV.
a)
b)
c)
d)

I and II only.
I and IV only.
II and III only.
II and IV only.

Solution: D (II and IV only)

I.
II.
III.
IV.

Incorrect. This is a symptom of weak controls for achieving organizational

goals and objectives, but not for safeguarding of assets.
Correct. This is a symptom of weak controls for safeguarding of
assets.
Incorrect. This is a symptom of weak controls for achieving organizational
goals and objectives, but not for safeguarding of assets.
Correct. Management's failure to take corrective action on past
engagement observations, which related to safeguarding of assets,
is a weakness related to safeguarding of assets.

Question No. 2
(LW) Ant (37 y/o), Bug (27 y/o), Cat (17 y/o) are indebted to Dog in the
amount of P 27,000, jointly and severally. What is the maximum amount that
Dog can collect from Ant?
Answer: P 18,000.00
Question No. 3 (AVERAGE)
Boyz Corporation developed the following income statement that shows the
expected percentage results at a sales level of P1,400,000:
Sales
Cost of sales
Gross margin
Other
expenses
Income

100
%
60%
40%
30%
10%

The cost of sales is all variable. Commissions is computed at 5% of sales,

and are included in the other expenses category. Compute for Boyz
Corporations margin of safety.
Answer: Php400,000
Margin of
Safety

= Sales - BEP

BEP

BEP

Margin of
Safety
Margin of
Safety

Fixed cost
CM
[25% *
P1,400,000]
35%
P1,000,000
P1,400,000 P1,000,000

=
P400,000

Question No. 4 (EASY)

(LW) Being made liable to a third person, a partner by estoppel may be

considered a
C
a Silent partner
.
b Secret partner
.
c Nominal partner
.
d Dormant partner
.
Question No. 5 (AVERAGE)

As of December 31, 2014, Passive company has the following deferred tax items in
its accounting records:
Deferred tax asset
Deferred tax liability

Php443,80
0
1,092,000

At the beginning of January 2015, the government reduced the company tax
rate from 35% to 32% effective January 2, 2015. The recorded tax balances
represent the tax effect of future taxable amounts and future deductible
amounts at 35%. What amount of tax expense or savings should Passive
Company recognize as a result of the change in tax rates?
ANSWER: Php38,040
Restated balance (P443,800/35%
x 32%)
Amount per books
Overstatement

Deferred
Tax Asset
Php405,76
0
443,800
Php38,040

Overstatement

Deferred
Tax
Liability
Php998,40
0
(1,092,000
)
Php93,600

Overstatement of DTA
Overstatement of DTL
Tax savings

Php38,040
(93,600)
Php55,560

Restated Balance
(P1,092,000/35% x 32%)
Amount per books

Question No. 6 (EASY)

If the ending inventory is understated, then?
A.
B.
C.
D.

Current
Current
Current
Current

ratio
ratio
ratio
ratio

is
is
is
is

overstated and EPS is understated

understated and EPS is overstated
overstated and EPS is overstated
understated and EPS is understated

Answer: D
Current Ratio= Current Assets/Current Liabilities = CA
Current Ratio
EPS = Net Income / Outstanding ordinary shares = NI

= lower
= lower EPS

Question No. 7 (EASY)

In reconciling the Cash in bank of INA Company with the bank statement balance
for the month
of November 2015, the following data are summarized:

Book debits for November, including October CM for note

collected, Php60,000
Book credits for November, including NSF of Php20,000 and
service charge of Php800 for October
Bank credits for November including CM for November for
bank loan of Php100,000 and October deposit in transit
for Php80,000
Bank debits for November including October outstanding
checks of Php170,800 and November service charge of
Php200

Php800,0
00
620,000
700,000
600,000

What is the amount of outstanding checks for November?

ANSWER: P170,200

October Outstanding Checks

Book credits for November representing checks (620,00020,000-800)
Bank debits for November representing checks (600,000-200)
November Outstanding Checks

Php170,8
00
599,200
(599,800)
Php170,2
00

Question No. 8 (AVERAGE)

While testing a divisions compliance with company affirmative-action
policies, an auditor found that:
i. Five percent of the employees are from minority groups.
ii. No one from a minority group has been hired in the past year.

The most appropriate conclusion for the auditor to reach is that:

a) Insufficient evidence exists of compliance with affirmative-action policies.

b) The division is violating the companys policies.
c) The companys policies cannot be audited and hence cannot be enforced.

d) With five percent of its employees from minority groups, the division is
effectively complying.

Solution: A

a) Correct. Without knowledge of guidelines for compliance, a

reasonable conclusion cannot be reached.
b) Incorrect. The fact that no minority has been hired this year is irrelevant
without knowing the total hires for the period.
c) Incorrect. An affirmative-action policy is clearly auditable.
d) Incorrect. This conclusion cannot be reached without knowledge of the actual
company policy.

Question No. 9 (EASY)

(LW) A constructive delivery of an immovable property subject to a sale and
leaseback transaction.
D
a Traditio brevi manu
.
b Traditio longa manu
.
c Traditio clavium simbolica
.
d Traditio constitutum possessorium
.

Question No. 10 (AVERAGE)

Management of Rapler Corporation is considering a lockbox system. The
bank will charge P10,000 annually for the service, which will save the firm
approximately P5,000 in processing costs. The lockbox system will reduce
the float for cash receipts by three days. Assuming that the average daily
receipts are equal to P100,000, and short-term interest costs are 5%,
calculate the benefit or loss from adopting the lockbox system. (indicate if
benefit or loss)
Answer: Php10,000 benefit
The firm saves money if the interest savings is greater than the
increased cost of processing cash receipts. The increased cost of
processing cash receipts is equal to P5,000 (P10,000 bank charge
P5,000 cost savings). The interest savings is measured by multiplying
the increase in average funds by the short-term interest rate. The firm
will have use of an additional P300,000 (P100,000 3 days) in average
funds. Therefore, the interest savings is equal to P15,000 (P300,000

 5%), and the overall benefit is equal to P10,000 (P15,000 P5,000).

Answer (a) is incorrect because it ignores the interest savings. Answer
(b) is incorrect because it only considers the bank charge.
Question No. 11 (EASY)

Happy, Inc. opens a sales agency in Davao City, and a working fund for P20,000 is
established on an imprest basis. The first payment from the fund is P3,000 for rent.
Which of the following entry should the Happy Inc. record in its books for the
payment of rent?
a. No entry
b. Dr. Rent 3,000
Cr. Cash 3,000
c. Dr. Davao Agency 3,000
Cr. Cash 3,000
d. Dr. Davao Agency 3,000
Cr. Working Fund 3,000
Answer: A
The expense incurred will be recorded on the agencys books. Entries will be
recorded only in the home offices books upon establishment and
replenishment of the agencys working funds.

Question No. 12 (AVERAGE)

The memorandum records of Smile Inc. for its defined benefit plan show the
following balances:
Plant asset, 1/1/2015
Defined benefit obligation, 1/1/2015
2015 Information:
Current service cost
Market yields on government bonds
at year-end
Contributions made
Benefits paid
Past service cost as a result of plan
amendment
Plan asset, 12/31/2015
Defined benefit obligation,
12/31/2015

Php5,000,000
5,200,000

750,000
10%
Php1,800,000
480,000
2,300,000
8,000,000
8,350,000

The fair value of the plan asset at year-end includes the unpaid contributions
due from Smile Inc., to the fund as well as the non-transferable FVPL issued
by Smile Inc. and held by the fund amounting to Php700,000 and Php300,000
respectively. Determine the amount recognized in profit or loss in accordance
with PAS 19 Employee Benefits.
ANSWER: Php3,070,000
Current service cost

Php750,00
0

Net interest expense (P5,200,0005,000,000) x 10%

Past service cost as a result of plan
amendment
Total amount recognized in profit or loss

20,000
2,300,000
Php3,070,0
00

Question No. 13
(LW) Identify the term that does not belong to the group: prescription,
performance, presentation, merger.
Answer: presentation
Question No. 14 (AVERAGE)
The following amounts were taken from the statement of affairs for Bagsik
Company:
Unsecured liabilities without priority
Stockholders' equity
Loss on realization of assets
Estimated administrative expenses that have
not been entered in the accounting records
Unsecured liabilities with priority

Php90,000
36,000
45,000
4,500
10,000

How much is the estimated payment for the unsecured liabilities without
priority?
Answer: P76,500
Total liabilities (90,000+10,000)
Stockholders equity
Total assets
Loss on realization of assets
Administrative expenses
Payment to unsecured liabilities with
priority
New capital

P100,000
36,000
126,000
(45,000)
(4,500)
(10,000)
P76,500

Question No. 15 (DIFFICULT)

If everything else remains constant and a firm increases its cash conversion
cycle, which of the following will most likely to happen to the firms
profitability?
A.
B.
C.
D.

Increase
Increase if earnings are positive
Decrease
Not be affected.

Answer: C
Cash conversion cycle is the period from which inventory is received
and processed (age of inventory, sold to outside party (age of
receivable) and eventually paid (age of accounts payable). Answer (c)
is correct because the longer the cash conversion cycle the greater
the amount of time from when a `firm pays its suppliers to the time it
ultimately collects receivables. The greater the time frame the more
likely the firm will have to borrow funds and incur interest expense
which reduces profitability. Answers (a), (b), and (d) are incorrect
because the incurrence of interest will reduce profitability.
Question No. 16 (AVERAGE)
An auditor is conducting a survey of perceptions and beliefs of employees
concerning an organizations health-care plan. The best approach to
selecting a sample would be to:
a) Focus on people who are likely to respond so that a larger sample can be
obtained.
b) Focus on managers and supervisors because they can also reflect the
opinions of the people in their departments.
c) Use stratified sampling where the strata are defined by marital and family
status, age, and salaried or hourly status.
d) Use monetary-unit sampling according to employee salaries.

Solution: C

a) Incorrect. This convenience sample is likely to emphasize people with lots of

available time at the expense of key employees who are too busy with
company work to respond.
b) Incorrect. Managers and supervisors often do not have the same needs and
perceptions as their subordinates and also may misperceive their views.
c) Correct. Because different employees probably have different
situations, needs, and experiences, stratified sampling would best
ensure that a representative sample would result.
d) Incorrect. This approach would produce a disproportionate number of highly
paid employees who may not have the same needs as lower-paid employees.

Question No. 17 (DIFFICULT)

A manufacturer gives warranties at the time of sale to purchasers of its
product. Under the terms of the contract for sale the manufacturer
undertakes to make good, by repair or replacement, manufacturing defects
that become apparent within one year from the date of sale. On the basis of
experience, it is probable that there will be some claims under the
warranties.
Sales of Php10,000,000 were made evenly throughout 2015.
At December 31, 2015 the expenditures for warranty repairs and
replacements for the product sold in 2015 are expected to be made 50

percent in 2015 and 50 percent in 2016. Assume for simplicity that all
the 2016 outflows of economic benefits related to the warranty repairs
and replacements take place on June 30, 2016.
Experience indicates that 95 percent of products require no warranty
repairs, 3 percent of products sold require minor repairs costing 10
percent of sales price; and 2 percent of products sold require major
repairs and replacement costing 90 percent of sales price. There is no
reason to believe future warranty claims will be different from its
experience.
At December 31, 2015 the discount rate for expected cash flows is
10.25 percent for 2016. Furthermore, an appropriate risk adjustment
factor to reflect uncertainties in the cash flow estimates is an
increment of 6 percent.
On December 31, 2015, the entity recognizes a warranty provision
measured at:
ANSWER: Php106,000
Expected cash flow:
Minor repairs P10,000,000 x (3% x 10%)
Major repairs and replacement
P10,000,000 x (2% x 90%)
Total
To be paid in 2016 (210,000 x 50%)
Risk adjusted amount (105,000 x 106%)
PV factor [1/(1+0.1025)^(6/12)]
Warranty Provision (111,300 x 0.9524)

Php30,000
180,000
210,000
105,000
111,300
0.9524
Php106,000

Question No. 18 (AVERAGE)

For Job Order No. 369, Escalera Company incurred the following costs for the
manufacture of 200 units of a novelty gadget:
Original cost accumulation:
Direct materials

Direct labor
Factory overhead (150% of direct labor)
Total

Direct costs of ten reworked units:

P13,20
0
16,000
24,000
P53,20
0

Direct materials
Direct labor
Total

P2,000
3,200
P5,200

The rework cost was attributable to exacting specifications required by

the job and was charged to the specific order. The units cost of Job
Order No. 369 is:
Answer: P316

Total Cost before Rework

Direct cost of Rework
DM
DL
FOH (3,200x150%)
Total Cost
Divide by: Number of units
Unit cost

P53,200
2,000
3,200
4,800
63,200
200
P316

Question No. 19 (DIFFICULT)

Caine, Osman, and Roberts formed a partnership on January 1, 2012,
agreeing to distribute profits and losses in the ratio of original capitals.
Original
investments
were
P625,000,
P250,000
and
P125,000 respectively. Earnings of the firm and drawings by each partner for
the period 2012-2014 follows:

2012
2013
2014

Net income
(loss)
Php440,000
185,000
(105,000)

Drawings
Osman

Caine
Php150,000
150,000
100,000

Php78,000
78,000
52,000

Roberts
Php52,000
52,000
52,000

At the beginning of 2015, Caine and Osman agreed to permit Roberts

to withdraw from the partnership. Since the books for the partnership
had never been audited, the partners agreed to an audit in arriving at
the settlement amount. In withdrawing, Roberts was allowed to take
certain furniture and was charged P15,000, although the book value
was P45,000; the balance of Roberts interest was paid in cash.
The following items were revealed in the course of the audit.
End of 2012
Understatement of accrued
expenses
Understatement of accrued

Php4,000
2,500

End of End of 2014

2013
Php5,000
Php6,500
1,000

1,500

revenue
Overstatement of inventories
Understatement of depreciation
expense on assets still held

15,000

20,000

20,000

1,500

3,500

2,000

How much must Roberts received from the partnership?

Answer: P11,250
Total income (440,000+185,000-105,000)
Adjustment (-6,500+1,500-20,000-1,500-3,500-2,000)
Adjusted total net income
Multiplied by the P/L percentage
Share in net income
Original investment
Total withdrawal (52,000 x 3)
Share on the impairment of the furniture (45,00015,000) x 12.50%
Fair value of the furniture
Cash received by Roberts from the partnership

P520,00
0
(32,000)
488,000
12.50%
61,000
125,000
(156,00
0)
(3,750)
(15,000)
P11,250

Question No. 20 (AVERAGE)

A chief audit executive (CAE) suspects that several employees have used
desktop computers for personal gain. In conducting an investigation, the
primary reason that the CAE chose to engage a forensic information systems
auditor rather than using the organizations information systems auditor is
that a forensic information systems auditor would possess:
a) Knowledge of the computing system that would enable a more
comprehensive assessment of the computer use and abuse.
b) Knowledge of what constitutes evidence acceptable in a court of law.
c) Superior analytical skills that would facilitate the identification of computer
abuse.
d) Superior documentation and organization skills that would facilitate in the
presentation of findings to senior management and the board.

Solution: B

a) Incorrect. The organizations information systems auditor would probably

have more knowledge of the organizations computing systems.
b) Correct. The distinguishing characteristic of forensic auditing is the
knowledge needed to testify as an expert witness in a court of law.
Although a forensic auditor may possess the other attributes listed,
the organizations information systems auditor may also possess
these skills or knowledge elements.
c) Incorrect. A forensic auditor would not necessarily have analytical or
organizational skills that are superior to those of the organizations auditor.
d) Incorrect. See answer c.

Question No. 21 (EASY)

Which of the following is encouraged by PAS 41, Agriculture to be separately
disclosed when there is a production cycle of more than one year for a
biological asset?
A
.
B
.
C
.
D
.

Physical change only

Price change only

Total change in value

Physical change and price change

Answer: D
Paragraph 51 of PAS 41 Agriculture states that the fair value less costs
to sell of a biological asset can change due to both physical change
and price change in the market. Separate disclosure of physical and
price changes is useful in appraising current period performance and
future prospects, particularly when there is a production cycle of more
than one year. In such cases, an entity is encouraged to disclose, by
group or otherwise, the amount of change in fair value less costs to sell
included in profit or loss due to physical changes and due to price
changes. This information is generally less useful when the production
cycle is less than one year (for example, when raising chickens or
growing cereal crops).
Question No. 22 (EASY)
On estate taxation, a statement duly certified by a CPA is necessary if the
estate tax return shows a gross value exceeding P__________
a.
b.
c.
d.

P1,500,000
P2,000,000
P2,500,000
P3,000,000

ANSWER: B
BASIS: Section 90(A)(3) of the Tax Code, as amended
Question No. 23 (EASY)
WIGGLE Company reported current assets of P3,900,000 and current
liabilities of P2,000,000 on its statement of financial position as of December

31, 2014. The following items may have been recorded incorrectly. The
company uses the periodic inventory system.
a. Goods purchased costing P220,000 were shipped FOB shipping point by a
vendor on December 26, 2014. WIGGLE received and recorded the invoice on
December 29, 2014, but the goods were not included in WIGGLEs physical
count of inventory because they were not received until January 4, 2015.
b. On December 31, 2013, WIGGLE purchased and received goods for P750,000.
Goods were shipped FOB seller. The invoice was recorded and paid January
2014. Goods are still unsold and were included in the physical count as of the
reporting date.
c. Goods purchased costing P200,000 were shipped FOB destination by a supplier
on December 28, 2014. WIGGLE received and recorded the invoice on
December 31, 2014, but the goods were not included in WIGGLEs 2014
physical count of inventory because they were not received until January 2,
2015.
d. Goods held on consignment from Jason Company were included in WIGGLEs
December 31, 2014, physical count of inventory at P130,000.
What is the working capital based on WIGGLEs statement of financial position?
Answer: P1,900,000

Question No. 24 (AVERAGE)

(LW) Determine the false statement.
D
a Donations between spouses during marriage are void; this rule applies to
. persons living-in without the benefit of a legal marriage and persons
b
.
c
.
d
.

guilty of adultery or concubinage.

A conditional promise to pay renders an instrument to be non-negotiable
while a negotiable instrument issued, accepted or endorsed when
overdue is considered to be payable on demand.
Consignment of goods is essentially an agency contract; insolvency of the
consignor results in the extinguishment of the agency.

A pledge must be in a public instrument showing a description of

the thing pledged and the date of the pledge to bind third persons;
a real mortgage must be registered and accompanied by an
affidavit of good faith to take effect against third persons.

Question No. 25 (EASY)

A company has six million ordinary shares in issue at the beginning of Year 1. At the
very end of the third quarter of Year 2 it announces a rights issue whereby all existing
shareholders will be entitled to buy one share for every four they hold, at a price of 30.
Immediately prior to the issue, the share price was 50. The profits for year 1, 2 and 3

were 225 million, 230 million and 245 million, respectively. The rights were exercised
immediately upon issuance. What is the (restated) basic earnings per share for year 2?
Answer: P33.99

Question No. 26 (EASY)

PAS 24 requires disclosure of compensation of key management personnel.
Which of the following would not be considered "compensation" for this
purpose?
A
.
B
.
C
.
D
.

Short-term benefits

Share-based payments
Termination benefits
Reimbursement of out-of-pocket expenses

Answer: D
As enumerated in PAS 24, Related Party Disclosures paragraph 9,
compensation includes:
a) short-term employee benefits, such as wages, salaries and social
security contributions, paid annual leave and paid sick leave, profitsharing and bonuses (if payable within twelve months of the end of the
period) and non-monetary benefits (such as medical care, housing,
cars and free or subsidised goods or services) for current employees;
b) post-employment benefits such as pensions, other retirement benefits,
post-employment life insurance and post-employment medical care;
c) other long-term employee benefits, including long-service leave or
sabbatical leave, jubilee or other long-service benefits, long-term
disability benefits and, if they are not payable wholly within twelve
months after the end of the period, profit-sharing, bonuses and
deferred compensation;
d) termination benefits; and
e) share-based payment.

Reimbursement of out-of-pocket expenses is not included.

Question No. 27 (DIFFICULT)
What is the ceiling on entertainment, amusement and recreation (EAR)
expense?
a. 0.50 percent (%) of net sales taxpayers engaged in sale of goods or
properties; or 1.00 percent (%) of net revenue for taxpayers engaged in sale
of services, including exercise of profession and use or lease of properties.

b. 1.00 percent (%) of net sales taxpayers engaged in sale of goods or

properties; or 0.50 percent (%) of net revenue for taxpayers engaged in sale
of services, including exercise of profession and use or lease of properties.
c. 0.50 percent (%) of net sales for taxpayers engaged in sale of goods or
properties; or 1.00 percent (%) of net revenue for taxpayers engaged in sale
of services, excluding exercise of profession and use or lease of properties.
d. 0.50 percent (%) of net revenue for taxpayers engaged in sale of goods or
properties; or 1.00 percent (%) of net sales for taxpayers engaged in sale of
services, including exercise of profession and use or lease of properties.

Answer: A
Section 5 of Revenue Regulations No. 10-2002 provides the ceiling on
entertainment, amusement and recreation (EAR) expense:
SECTION 5.
Ceiling on Entertainment, Amusement, and Recreation
Expense. There shall be allowed a deduction from gross income for
entertainment, amusement and recreation expense, as defined in Section 2
of these Regulations, in an amount equivalent to the actual entertainment,
amusement and recreation expense paid or incurred within the taxable year
by the taxpayer, but in no case shall such deduction exceed 0.50 percent (%)
of net sales (i.e., gross sales less sales returns/allowances and sales
discounts) for taxpayers engaged in sale of goods or properties; or 1.00
percent (%) of net revenue (i.e., gross revenue less discounts) for taxpayers
engaged in sale of services, including exercise of profession and use or lease
of properties.
Question No. 28 (EASY)
The use of an analytical review to verify the correctness of various operating
expenses would not be a preferred approach if:
a) An auditor notes strong indicators of a specific fraud involving these
accounts.
b) Operations are relatively stable and have not changed much over the past
year.
c) An auditor would like to identify large, unusual, or non-recurring transactions
during the year.
d) Operating expenses vary in relation to other operating expenses, but not in
relation to revenue.

Solution: A

a) Correct. If the auditor already suspects fraud, a more directed audit

approach would be appropriate.
b) Incorrect. Relatively stable operating data is a good scenario for using
analytical review.
c) Incorrect. Analytical review would be useful in identifying whether large, nonrecurring, or unusual transactions occurred.
d) Incorrect. Analytical review only needs to have accounts related to other
accounts or other independent data. It does not require that they be related
to revenue.

Question No. 29 (EASY)

On January 1, 2014, Applied Co. acquired 10%, P1M bonds for P951,963. The
principal is due on January 1, 2017 but interest is due annually starting
December 31, 2014. The yield rate on the bonds is 12%. The entity adopts the
calendar year reporting. Applied Co. prepares and publishes quarterly reports in
accordance with PAS 34 Interim Financial Reporting as required by SEC.
In August 1, 2015, ABC Co. changed its business model. It was ascertained that the
investment in bonds at amortized cost should be reclassified to held for trading
securities on reclassification date. On October 1 to December 31, 2015, the bonds
were quoted at 103. On January 1, 2016, the bonds were quoted at 104.
Assume that Applied Co. early adopted PFRS 9 Financial Instruments last 2013.
Determine the reclassification date.
Answer: October 1, 2015

Question No. 30 (EASY)

In which of the following will an entity not record impairment loss? (choose one or
more)

Answer: Scenarios 1, 2 and 4 only

Question No. 31 (AVERAGE)

ABC Company has a building that it occupies as office space. During the
year, ABC Company decided to lease out the building to third party.
Consequently, the building is carried in ABC Companys books from costs to

fair value. How should ABC Company account for the resulting increase in
carrying amount of the building?
A
.
B
.
C
.
D
.

The increase is recognized in other comprehensive income to the extent that

the increase reverses a previous impairment loss.
The increase is recognized as part of other comprehensive income or
revaluation surplus within equity, if no previous impairment has been recorded.
The increase is recognized directly to profit or loss.
None of the above.

Answer: B
Paragraph 62 of PAS 40, Investment Property
TRANSFERS
Up to the date when an owner-occupied property becomes an
investment property carried at fair value, an entity depreciates the
property and recognizes any impairment losses that have occurred.
The entity treats any difference at that date between the carrying
amount of the property in accordance with PAS 16 and its fair value in
the same way as a revaluation in accordance with PAS 16. In other
words:
(a) any resulting decrease in the carrying amount of the property is
recognized in profit or loss. However, to the extent that an amount is
included in revaluation surplus for that property, the decrease is
recognised in other comprehensive income and reduces the revaluation
surplus within equity.
(b) any resulting increase in the carrying amount is treated as
follows:

(i) to the extent that the increase reverses a previous

impairment loss for that property, the increase is recognized
in profit or loss. The amount recognized in profit or loss does not
exceed the amount needed to restore the carrying amount to the
carrying amount that would have been determined (net of
depreciation) had no impairment loss been recognized.
(ii) any remaining part of the increase is recognized in other
comprehensive income and increases the revaluation
surplus within equity. On subsequent disposal of the investment
property, the revaluation surplus included in equity may be
transferred to retained earnings. The transfer from revaluation
surplus to retained earnings is not made through profit or loss.
Question No. 32 (AVERAGE)

At the beginning of the year entity H invests P5 million to acquire a 30% equity
interest in an associate, entity A. In addition, H lends P9 million to the associate, but
does not provide any guarantees or commit itself to provide further funding. H's loan

to A is considered part of the net investment in the associate. Assume the associate
generated a P20 million loss during the year.
Determine the equity interest in the associate and the loan carrying value.
Answer: P-0- ; P8million

Question No. 33 (DIFFICULT)

Summary adjusted trial balance for the home office and branch of TJ
Corporation at December 31, 2014 are as follows:
Home office
Debits:
Other assets
Inventories, January 1, 2014
Branch
Purchases
Shipments from home office
Expenses
Dividends
Total debits
Credits:
Other liabilities
Capital stock
Retained earnings
Home office
Unrealized profit in branch
inventory / loading
Sales
Shipments to branch
Branch profit
Total credits

P530,000
50,000
200,000
500,000
120,000
100,000
P1,500,00
0
P

90,000
500,000
100,000
10,000
537,500
200,000
62,500
P1,500,00
0

Branch
P165,000
45,000
240,000
50,000
P 500,000

25,000
175,000

300,000
_______
P 500,000

Additional information:
1. The home office ships merchandise to its branch at 120% of home
office cost.
2. Inventories at December 31, 2014 are P70,000 for the home office
and P60,000 for the branch. The branch inventory is at transfer
prices.
How much is the net income of the home office and the branch (own
books and in the home offices books) for the year ended December
31, 2014?

Answer: P137,500; P62,500

Home office:
Sales
Cost of sales (50,000+500,000-200,000-70,000)
Expenses
Net income
Branch
Sales
Cost of sales (45,000+240,000-60,000)
Expenses
Net income, per branchs books
Realized profit (225,000 x 20%/120%)
Net income, per home offices books

P537,50
0
(280,00
0)
(120,00
0)
P137,50
0
P300,00
0
(225,00
0)
(50,000)
25,000
37,500
P62,500

Question No. 34 (DIFFICULT)

Sarah Company, a manufacturing entity, owns 75% of the ordinary shares of
Sandra Company, an investment entity. Sandra Company owns 60% of the
ordinary shares of Vanessa Company, an insurance entity. Sandra Company
has control over Vanessa Company. In Sarah Companys consolidated
financial statements, should consolidation accounting or equity method be
used for Sandra Company and Vanessa Company?
A
.
B
.
C
.
D
.

Consolidation used for Sandra and equity method used for Vanessa.
Consolidation used for both Sandra and Vanessa
Equity method used for Sandra and consolidation used for Vanessa
Equity method used for both Sandra and Vanessa

Answer: B
Sarah should use consolidation for both Sandra and Vanessa. Sarah has a
controlling financial interest in Sandra through a 75% direct ownership.
The intercorporate stock ownership of Sarah with respect to Vanessa is
45%. Sandra owns 60% of Vanessa and Sarah owns 75% of Sandra. Thus,
indirectly, Sarah owns 45% of Vanessa (75% x 60%). Further, Sandra
controls Vanessa.

Question No. 35 (AVERAGE)

Entity G acquires Entity H and as part of the arrangement, Entity G agrees to pay an
additional amount of consideration to the seller in the future, as follows:
if the 12 month earnings in two years' time (also referred to as the trailing
12 months) are P1 million or less nothing will be paid.
if the trailing 12 months' earnings in two years' time are between P1 million
and P2 million 2 12 month earnings will be paid.
if the trailing 12 months' earnings in two years' time is greater than P2
million 3 12 month earnings will be paid.

At the date of acquisition, the possible twelve-month earnings of Entity H in

two years' time are determined to be, as follows:

P0.8 million 40%

P1.5 million 40%
P2.5 million 20%

Applying IFRS 13 Fair Value Measurement, determine the amount to be

discounted at the date of acquisition to determine its fair value.
Answer: P2.7 million
Question No. 36 (DIFFICULT)

Mr. Eddard Stark, a resident citizen, died during the year leaving the following:
Gross estate
P 5,000,000
Family home
1,500,000
Funeral expenses
300,000
Judicial expenses
500,000
Medical expenses
600,000
Claims against the estate
200,000
Taxes
25,000
Losses
15,000
Vanishing deduction
30,000
Standard deduction
1,000,000
Net share of the surviving spouse in the conjugal/community estate
800,000
Amounts receivable under Republic Act 4917
20,000
How much are the ordinary and special deductions from the gross estate,
respectively?

a.
b.
c.
d.

P940,000
P940,000
P990,000
P990,000

and
and
and
and

P2,550,000
P2,650,000
P2,550,000
P2,650,000

ANSWER: A
Solution:
Ordinary
Special
Family home (Maximum amount)
P 1,000,000
Funeral (Maximum amount)
P 200,000
Judicial expenses
500,000
Medical expenses (Maximum amount)
500,000
Claims against the estate
200,000
Taxes
25,000
Losses
15,000
Vanishing deduction
30,000
Standard deduction
1,000,000
Amounts receivable under Republic Act 4917
20,000
Total
P 940,000
P
2,550,000

Question No. 37
(LW) A newly organized corporation issues 10,000 no-par shares with an
issue price of P 50.00. How much is the required minimum paid-in capital?
Answer: P 125,000
Question No. 38 (DIFFICULT)
Grey Worm Company, a VAT registered entity, purchased in the beginning of
CY 2014, a delivery from a VAT-registered dealer of automobiles. Due to
recent flooding, the only record/document available related to the said
purchase was an official receipt with an amount of P 1,145,520 (inclusive of
VAT of P 123,840).
How much would be the depreciation expense that can be claimed as
deductible expense in CY 2014 if the equipment has useful life of 4 years?
a. P 288,960
b. P 259,000
c. P 286,380
d. P 317,340
e. P 255,420
ANSWER: A

Question No. 39 (DIFFICULT)

Riverlands Corporation, a VAT-registered entity, is engaged in the business of
selling books, school supplies and novelty items. The following were taken
from the records of the Company:
Sale of school supplies Domestic
Sale of school supplies Export (in USD 28,000)
Sale of books Domestic
Sale of novelty items Domestic
Purchases of books
Purchases of school supplies and novelty items
Purchase of computer (used in all transactions)

P 560,000
1,120,000
520,000
160,000
400,000
1,150,000
180,000

Compute for the VAT payable/(Overpayment).

a.
b.
c.
d.

(P68,160)
(P60,858)
P14,142
None of the above

Answer: A. (P68,160)
Output tax on sale of school supplies - Domestic
(560,000*12%)
Output tax on sale of school supplies - Export
(560,000*0%)
Output tax on sale of novelty items (160,000*12%)
Total
Less: Input taxes
On purchases of school supplies and novelty items
(1,150,000*12%)

67,20
0
19,20
0
(138,00
0)

On purchase of computer
[180,000*12%*(1,840,000/2,400,000)]

(16,56
0)
(68,1
60)

VAT payable/(Overpayment)

Based on Section 109 (R) of the Tax Code, sale of books is a VAT exempt
transaction. Hence, it is not subject to output VAT. Furthermore, the related input
VAT on the purchases is not creditable.

Question No. 40 (DIFFICULT)

Storms End Corporation, organized in 2010, was engaged in a large-scale
distribution of poultry products. For the taxable year 2015, the company
reported the following result of operations:
Sales
P3.2 million
Sales discounts
0.2 million
Beginning inventory
1.8 million
Cost of goods available for sale
3.0 million
Ending inventory
1.0 million
Operating expenses
0.7 million
General and administrative expenses 0.3 million
The company opted to use optional standard deduction in filing its 1st
quarter income tax return.
How much is the Companys income tax?
Answer: P20,000
P3.2
million
0.2
million
P3.0
million

Sales
Less: Sales discounts
Net sales
Less: Cost of Sales
Cost of goods available for
sale
Less: Ending inventory
Gross
income
Less: OSD
(40%)

P3.0
million
1.0
million

2.0
million
P 1.0
million
0.40
million

Taxable
income
Tax rate
Tax due
(OSD)
MCIT (2%)

P 0.60
million
30%
P180,000
P20,000

Income tax due (lower)

P20,000

Question No. 41 (AVERAGE)

Candice Company reported net income of P34,000 for the year ended December 31,
2013 which included depreciation expense of P8,400 and a gain on sale of equipment
of P1,700. The equipment had an historical cost of P40,000 and accumulated
depreciation of P24,000. Each of the following accounts increased during 2013
(Assume that the increases in the following accounts are due to cash transactions
only.):
Patent
P9,800
Prepaid rent*
4,500
Available for sale investment
8,000
Property and plant (vehicle held for rental)** 6,000
Bonds payable
5,000
*To be consumed within 12 months from the balance sheet date
** Will be subsequently held for sale
What amount should be reported as net cash provided (used) by investing activities
for the year ended December 31, 2013?
Answer: (P100)

Question No. 42 (AVERAGE)

On January 1, 2009 an entity invested P1 million in a loan with a par value of P1

million. The loan pays interest stated at 7.5% on December 31 annually in arrears and
is to be redeemed at par on December 31, 2018. The entity accounts for the loan at
amortised cost.
On January 1, 2014 it unconditionally sells the right to receive the remaining five
interest payments to a bank. The derecognition provisions of IAS 39 (IFRS 9) are
applied to the interest payments as an identifiable part of the asset, leading to the
conclusion that they are required to be derecognized. On the same date, the current
market interest rate available to the borrower is 5%.
Determine the gain (loss) on derecognition of part of a financial asset, if any.
Answer: P31,713

Question No. 43
(LW) A corporation organized for business or profit is called Civil Corporation
while one which is organized for public charity is called ___________.

Answer: Eleemosynary Corporation

NOTE: incorrect spelling shall be considered wrong.

Question No. 44 (DIFFICULT)

An entity plans to dispose of a group of its assets (as an asset sale). The assets
form a disposal group, and are measured as follows:
Carrying amount
before
reclassification
as held for sale
Goodwill
PPE (carried at revalued
amount)
PPE (carried at cost)
Inventory
Investment
in
equity
securities
Total

P 1,500,000
4,600,000

Carrying amount
as re-measured
immediately
before
reclassification
as held for sale
P 1,500,000
4,000,000

5,700,000
2,400,000
1,800,000

5,700,000
2,200,000
1,500,000

P16,000,000

P14,900,000

The entity measures the fair value less costs to sell of the disposal group as
P13,000,000.
Determine the carrying amount of the PPE (carried at revalued amount) after
classifying the group as held for sale. (Round off amounts in nearest peso)
a. P3,835,052
b. P3,880,597
c. P4,124,138
d. P --0--

Question No. 45 (DIFFICULT)

What is in the scope or affected by IFRS 15?

I.
II.
III.
IV.
V.
VI.
VII.

Contracts with customers

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

b. I and II only
d. I, V, VI and VII only

c. I, III, IV and VI only

Question No. 46 (DIFFICULT)

A lessee is required to pay a refundable deposit of P100,000 to the lessor at the

inception of an operating lease for which no interest is receivable. The fixed lease term
is 10 years. The market interest rate is 5% (i.e., that is the interest rate the lessor
would have to pay if he borrowed P100,000 for a 10 year term from a third party). The
date of inception is February 1, 2013.
Assuming the annual lease payment is P60,000, determine the net amount recognized
in lessees profit or loss as of December 31, 2014 applying PAS 17 Leases and
Financial
instruments
standards.
(Round PV factors to 4 decimal places)
Answer: P60,651 decrease

Question No. 47 (DIFFICULT)

At the end of January 2013, the city government provided SUNJI Company a zero
interest P30,000,000 3-year loan used by the Company in acquiring a building on the
same date. The prevailing market rate of interest for this type of loan is 8%. The
government imposes that the building must be used for social housing for ten years.
The Company estimated that there is reasonable assurance that it will meet the terms
of the grant. The Company will classify the building as owner occupied property after
the socialized housing project. The Company opted to use the cost model of
accounting the building with a 15-year life from the date of acquisition.
Applying provisions of PAS 20 Accounting for Government Grants and Disclosures of
Government Assistance, what is the amount recognized as income from the grant as
of December 31, 2013?
(Round PV factors to 4 decimal places)
Answer: P567,050

Question No. 48
(LW) A written contract of sale of a lot is made between two parties for P
50,000. The lot is the only property of the seller who sold it to defraud a
creditor. Assuming that the buyer is aware of the fraudulent intent of the
seller, which term correctly describes that status of the contract of sale?
Void, Voidable, Rescissible, Unenforceable.
Answer: Rescissible
Question No. 49 (DIFFICULT)
During 2014, a departments 3-variance overhead standard costing system
reported unfavorable spending and volume variances. The activity level
selected for allocating overhead to the product was based on 80% of

practical capacity. If 100% of practical capacity had been selected instead,

how would the reported unfavorable spending and volume variances be
affected?
A.
B.
C.
D.

Spending Variance
Increased
Increased
Unchanged
Unchanged

Volume Variance
Unchanged
Increased
Increased
Unchaged

Answer: C
The requirement is to determine how unfavorable spending and output level
(volume) variances computed using the three-variance method would be
affected if the estimated activity level were increased. An increase in the
activity level used to allocate overhead to the product will lower the standard
fixed application rate (SFR). The formula for computing the SFR is

If the denominator in this formula is raised, the SFR is lowered. However, an

increase in activity level used to allocate overhead will not affect the
standard variable application rate (SVR). This rate is computed using the
high-low method or regression analysis. The diagram for the 3- variance
method is

When computing the standard variance, the SVR is used but the SFR is not.
Therefore, this variance will not change with a change in activity level. The
output level variance is computed by comparing the budgeted amount of
total overhead costs for outputs achieved with the total amount of overhead
applied. Both computations use SVR, but only the applied figure uses the SFR.
In this problem, the output level variance is unfavorable indicating that the
budgeted amount is more than the applied amount. When the SFR is lowered
with the increase in activity level, less cost will be applied for every unit
produced. The output level variance will therefore be increased and become
more unfavorable.

Question No. 50
You have obtained the latest actuarial report prepared for SHOULD-BE Corps
pension plan. Information about the actuarial reports are presented below:
From the December 31, 2015 actuarial report

Present value of defined benefit

obligation
Fair value of plan assets at end of
year
Current service cost for year
Benefits paid in year
Contributions paid in year
Discount rate at end of year

12/31/201
4
3,600,000

12/31/201
5
3,500,000

3,900,000

3,800,000

345,000
240,000
430,000
4.5%

320,000
230,000
410,000
5.0%

Assume contributions and benefit payments occurred evenly throughout the year.

Based on the above information and assumptions determine the OCI component to of
the PBO to arrive at the ending balance on December 31, 2015: (Round of any
components in the computation to the nearest thousands) Indicate if debit or credit

Answer: P347,000 credit