naqdown final questions

8/17/2019 Naqdown Final Questions

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Easy Questions No. 1Under a royalty agreement with another company, W and Co. will payroyalties for the assignment of a patent for three years. When should thecompany recognize the royalty payment as an expense?A

.

In the period paid.

B.

In the period incurred.

C.

At the date the royalty agreement egan.

!.

At the date the royalty agreement expired.

Easy Questions No. 2 "he following shall e considered as #de minimis# ene$ts not su%ect toincome tax as well as withholding tax on compensation income of othmanagerial and ran& and $le employees, except'

a. (onetized )alue of )acation and sic& lea)e credits paid to go)ernmento*cials and employees

. (onetized unused sic& lea)e credits of pri)ate employees not exceeding ten+- days during the year

c. (edical cash allowance to dependents of employees, not exceeding /01- peremployee per semester or /21 per month3

d. 4ice susidy of /,1-- or one + sac& of 1- &g. rice per month amounting tonot 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;


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Answer: P3,044,250:rom 2-1 E+


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Answer' A "he law states that marginal utility declines as consumers acKuiremore of a good. "herefore, answer +a is correct. Answer + is incorrectecause 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 of the followingterms is normally not associated withextinguishing an oligation through the process of no)ation?! a

.Lxpromission

.

8urogation

c

.

!elegacion

d.

4emission

Easy Questions No. "Which of the following situations is most li&ely to e the su%ect of a writteninterim report to the engagement client?

a 8e)enty percent of the planned audit wor& has een completed with nosigni$cant ad)erse oser)ations.

"he auditors ha)e decided to sustitute sur)ey procedures for some of the

planned detailed re)iew of certain records.c "he engagement program has een expanded ecause of indications of

possile fraud.d pen urning at a susidiary plant poses a prospecti)e )iolation of pollution

regulations.

So$ution: %a Incorrect. "here is no need for earlier consideration in this situation. Incorrect. Changes in auditor methodology are not of particular importance to

the engagement client.c Incorrect. Indications of possile fraud would not e communicated to the

engagement client.&' (orre)t. Su) a situation wou$& re*uire i++e&iate attention.

Easy Questions No. Which of the following is the most li&ely strategy to reduce the rea&e)enpoint?

A. Increase oth the $xed costs and the contriution margin.B. !ecrease oth the $xed costs and the contriution margin.


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C. !ecrease the $xed costs and increase the contriution margin.!. Increase the $xed costs and decrease the contriution margin.

Answer' ( "he short5cut rea&e)en point formula is calculated as follows'

"hus, y decreasing the numerator +$xed costs and increasing thedenominator +contriution margin, the rea&e)en point will ereduced.

Easy Questions No. -(inecraft Company Kuarries marle at two locations and sells it to e used inconstruction of uildings. "he Company pro)ides for a depletion rate of 1. "he Kuarry is leased on a year5to5year asis with the Company paying a

royalty of /hp-.-1 per ton of marle Kuarried. ther data rele)ant to thereKuirements are'

Lstimated total reser)es, tons /hp@-,---,--- "ons Kuarried through !ecemer =, 2- ,---,--- "ons Kuarried, 2- ,@--,---8ales, 2- ,2--,---

Dow much would e the depletion for 2- for $nancial reportingpurposes?

ANSWER: P0

8ince the two Kuarries are merely leased and the Company pays a/hp-.-1 royalty for e)ery ton of marle Kuarried, (inecraft will notrecognize the Kuarries as assets in its oo&s and will record onlyroyalty expense for leasing them. Dence, there is no depletionexpense.

Easy Questions No. 10AAB Construction Company uses the percentage5of5completion method of

accounting. In 2- AAB egan wor& under contract M=


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"he portion of the total contract price to e recognized as re)enue in 2- is

Answer: P4,000,000Cost incurred during the year /=,---,---

"otal estimated costs

+=,---,---J2,---,---

1,---,---

/ercentage of completion 2-Contract price 2-,---,---4e)enue in 2- /,---,---

A/erae 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. "heinternal auditor recei)ed an anonymous tip that the manager orderedsustantially more parts than were necessary from a family memer in the partssupply usiness. "he unneeded parts were ne)er deli)ered. Instead, themanager processed recei)ing documents and charged the parts to machinery

maintenance accounts. "he payments for the undeli)ered parts were sent to thesupplier, and the money was di)ided etween the manager and the familymemer.

Which of the following tests would est assist the auditor in decidingwhether 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 reasonaleness

of the numer 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 noinformation on how long this might ha)e een occurring.

Incorrect. /hysical testing would not locate nonexistent parts that ha)ealready een charged to maintenance.

)' (orre)t. An ana$ysis o re!air !arts )are& to +aintenan)e wou$&*uantiy te e)essi/e nu+er o ite+s an& &ete)t tat ause +aye o))urrin.

d Incorrect. ac& of segregation of duties allowed the fraud to occur. "hemanager was authorized to process oth the purchase and receipt, so the

test would only )erify the fraudulent paperwor&.

A/erae Question No. 2+W Under the cumulati)e )oting system of electing directors of a 15memeroard of a duly organized corporation, a stoc&holder owning -- shares isentitled to cast a total of! a. 2- )otes, distriuted eKually among 1 candidates that the stoc&holder

wishes to elect


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. -- )otes, distriuted eKually among 1 candidates that the stoc&holderwishes to elect

c. -- )otes, all casted in fa)or of a single candidate that the stoc&holderwishes to elect

d. 1-- )otes, with ma%ority of )otes casted in fa)or a singlecandidate and remaining )otes distriuted eKually among othercandidates that the stoc&holder wishes to elect

A/erae Question No. 3 "he (craw Company manufactures and sells Ariza handags to assortedprints. !ata for 2- follows'

8elling price per piece /


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9et income aftertax /1,


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:air )alue then is eKual to /hp2= which is the price that would erecei)ed minus the costs to transport the asset to the mar&et.

A/erae Question No. 5n Sanuary 2, 2-, Teith Uran Corporation purchased 0- of the ordinaryshares of (imi Company for/ ,@01,---. At that date, (imi Company had / ,


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Input tax'Input tax on taxale goods /1,---Input tax on zero5rated sales =,---Input tax on sale of exempt goods 2,---Input tax on depreciale capital goods

not attriutale to any speci$c acti)ity+pertains to monthly amortization for @- months 2-,---

Dow much is the creditale input tax for the month?

a. /2,01-. /-,1--c. /=2,---d. /


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/A8 =


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A/erae Question No. 10A race trac& ettor won on the following ets'

n doule, a et of /2-- and di)idend of /-- per /- tic&etn winner ta&e all, a et of /1-- and a di)idend of /0-- per /1- tic&etn forecast, a et of /,--- and di)idend of /1- per /1- tic&et

"he total percentage tax due from the winnings isa. /2,-@-. /,-=-c. /(AA;'!rora+ )an i&entiy e+!$oyees wo a/e no &e&u)tions. ;is isi+!ortant e)ause ?)titious or ter+inate& e+!$oyees wi$$ enera$$ynot a/e any &e&u)tions.

c Incorrect. A CAA" program can recalculate amounts such as gross pay, netpay, taxes and other deductions, and accumulated or used lea)e times.

"hese recalculations can help determine if the payroll program is operatingcorrectly 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 are6tagged,7 and as they proceed through the system, a data $le is created that


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traces the processing through the system and permits an auditor tosuseKuently re)iew that processing. "his would not, howe)er, identify a$ctitious or terminated employee.

%i=)u$t Question No. 2Statement 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 contriute money to a partnership utnot ser)ices.A a

.nly statement I is false c

.nly statement III is false

.

nly statement II is true d.

All of the statements are true

%i=)u$t Question No. 3!uring 2-, !iana Corp. experienced the following power outages'

9umer of outages per

month9umer of

months- = 22 = =

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 +oradditional expenditures for 2-1 would e?

Answer' P!1,#00 or P!1,#00 sa/ins

In 2- !iana incurred the following costs due to power outages'

9umer of outagesper month

9umer of months

9umer ofoutages

- x = -

x 2 22 x <= x = ;

2 ;

; outages x / --Foutage O /0,@--


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"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 !ecemer =, 2-1, an entity has an asset of /hp,--- for interestrecei)ale that will e taxed when the cash is recei)ed in 2-@. "ax ispayale at 2- percent on the $rst /hp1--,--- of taxale pro$t earned and=- percent on any remainder. In 2-1, the entity earned taxale pro$t of/hp1-,---. In 2-@, the entity expects to earn taxale pro$t of/hp11-,---. What amount should the entity recognize for the deferred taxliaility relating to the interest recei)ale?

ANSWER: P!3#/A8 2 Income Taxes pro)ides that when diRerent tax rates apply todiRerent le)els of taxale income, deferred tax assets and liailities are

measured using the a)erage rates that are expected to apply thetaxale pro$t +tax loss of the periods in which the temporarydiRerences are expected to re)erse.

Lxpected tax to e paid in 2-@+1--,--- x 2- J 1-,--- x=-

/hp1,---

Lxpected a)erage tax rate+1,---F11-,--- 2-.;

!eferred tax liaility+,--- x 2-.; /hp


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#et Income $rom o!erations P%00,000&a!ital Gain P 50,000&a!ital 'oss (P)00,000*#et &a!ital 'oss (50,000* +Taxable Income 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 suc-sales or exc-anges

%i=)u$t Question No. #8arah Company, a manufacturing entity, owns 01 of the ordinary shares of8andra Company, an in)estment entity. 8andra Company owns @- of theordinary shares of Nanessa Company, an insurance entity. 8andra Companyhas control o)er Nanessa Company. In 8arah Company>s consolidated$nancial statements, should consolidation accounting or eKuity method e

used for 8andra Company and Nanessa Company?A.

Consolidation used for 8andra and eKuity method used for Nanessa.

B.

Consolidation used for oth 8andra and Nanessa

C.

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 acontrolling $nancial interest in 8andra through a 01 direct ownership.

"he intercorporate stoc& ownership of 8arah with respect to Nanessa is1. 8andra owns @- of Nanessa and 8arah owns 01 of 8andra. "hus,indirectly, 8arah owns 1 of Nanessa +01 x @-. :urther, 8andracontrols 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 /@(. thestatements of $nancial position at !ecemer =, 2-= and !ecemer =,2-, prior to capitalization of interest are as follows'

2F=F= 2F=F!e)elopment property / 5 /,2--,---ther assets @,---,--- @,---,---

/ @,---,--- /0,2--,---oans


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1.1 deenture stoc& / 2,1--,--- /2,1--,---Ban& loan at @ perannum

5 ,2--,---

Ban& loan at 0 perannum

,---,--- ,---,---

/ =,---,--- /,0--,---

8hareholders> eKuity 2,1--,--- 2,1--,---

"he an& loan with eRecti)e interest rate at @ was drawn down to matchthe de)elopment expenditure on April , Suly , and ctoer 2-. "he1.1 deenture stoc&s were irredeemale. Lxpenditure was incurred on thede)elopment as follows' April Y /@--,---3 Suly Y /--,---3 ctoer Y/2--,---. If all the orrowing were general +i.e., the an& loan @ was notspeci$c to the de)elopment and would ha)e een a)oided ut for thede)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 oligation?B a

.Culpa AKuiliana c

.9egotiorum estio

.

(ora Accipendi d.

8olutio Indeeti

%i=)u$t Question No. -An audit committee is concerned that management is not addressing allinternal audit oser)ations and recommendations. What should the auditcommittee do to address this situation?

a 4eKuire managers to pro)ide detailed action plans with speci$c dates foraddressing audit oser)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 estalish procedures to monitor progress.

So$ution: %a Incorrect. (anagement are responsile for ensuring action on all internal

audit oser)ations and recommendations, ut some actions may ta&e time tocomplete and it is not practical to expect that all will e resol)ed when anaudit committee meets.

Incorrect. 8ee answer 6a7.c Incorrect. 8ee answer 6a7.


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&' (orre)t. ;e )ie au&it ee)uti/e is res!onsi$e or esta$isina!!ro!riate !ro)e&ures or +onitorin te !roress y +anae+enton a$$ interna$ au&it oser/ations an& re)o++en&ations. ;isres!onsii$ity sou$& e written into its )arter y te au&it)o++ittee, an& !roress sou$& e re!orte& at ea) au&it)o++ittee +eetin.

%i=)u$t Question No. 10Cersei owns shares of stoc&s of Castle Blac& Corporation which shepurchased se)eral years ago for / million. "he stoc&s ha)e a current fairmar&et )alue of /- million. 8he donates one5half of the stoc&s to herdaughter (yrcella on !ecemer =, 2- and the remaining half to herdaughter (yrcella again on Sanuary 2, 2-1 when the fair mar&et )alue ofthe stoc&s was /1 million.Assuming (yrcella suseKuently sold all the shares of stoc&s to Lllaria 8andfor /- million, how much did Cersei gain on the sale?

a. / million

. /1 millionc. /; milliond. /- million

Answer: C. P9 million

Solution: P10 million – P1 million = P9 million

SEI6INA9 R8N%

Question No. 1 >EAS@'. Which of the following oser)ations y an auditor is most li&ely to indicate

the existence of control wea&nesses o)er safeguarding of assets?

I. A ser)ice departmentQs location is not well suited to allow adeKuate ser)ice toother units.

II. Lmployees hired for sensiti)e positions are not su%ected to ac&groundchec&s.

III. (anagers do not ha)e access to reports that pro$le o)erall performance inrelation to other enchmar&ed organizations.

IN. (anagement has not ta&en correcti)e action to resol)e past engagementoser)ations related to in)entory controls.

a I and II only. I and IN only.c II and III only.d II and IN only.

So$ution: % >II an& I7 on$y'


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I. Incorrect. "his is a symptom of wea& controls for achie)ing organizationalgoals and o%ecti)es, ut not for safeguarding of assets.

II. (orre)t. ;is is a sy+!to+ o wea )ontro$s or saeuar&in oassets.

III. Incorrect. "his is a symptom of wea& controls for achie)ing organizationalgoals and o%ecti)es, ut not for safeguarding of assets.

I7. (orre)t. anae+ents ai$ure to tae )orre)ti/e a)tion on !astenae+ent oser/ations, wi) re$ate& to saeuar&in o assets,is a weaness re$ate& to saeuar&in o assets.

Question No. 2+W Ant +=0 yFo, Bug +20 yFo, Cat +0 yFo are indeted to !og in theamount of / 20,---, %ointly and se)erally. What is the maximum amount that!og can collect from Ant?

Answer' / A7ERAE'Boyz Corporation de)eloped the following income statement that shows theexpected percentage results at a sales le)el of /,--,---'

8ales--

Cost of sales @-ross margin -therexpenses

=-

Income -

"he cost of sales is all )ariale. Commissions is computed at 1 of sales,

and are included in the \other expenses> category. Compute for BoyzCorporation>s margin of safety.

Answer' P!400,000

Question No. 4 >EAS@'

(argin of8afety O 8ales 5 BL/

BL/ O:ixed cost

C(E21 H

/,--,---G

=1

BL/ O /,---,---

(argin of8afety

O /,--,--- 5/,---,---

(argin of8afety

OP400,000


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+W Being made liale to a third person, a partner y estoppel may econsidered aC a

.8ilent partner

.

8ecret partner

c.

9ominal partner

d.

!ormant partner

Question No. 5 >A7ERAE'As of !ecemer =, 2-, /assi)e company has the following deferred tax items inits accounting records'

!eferred tax asset /hp=,


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Question No. # >EAS@'If the ending in)entory is understated, then?

A. Current ratio is o)erstated and L/8 is understatedB. Current ratio is understated and L/8 is o)erstatedC. Current ratio is o)erstated and L/8 is o)erstated!. Current ratio is understated and L/8 is understated

Answer' %Current 4atioO Current AssetsFCurrent iailities O CA O lowerCurrent 4atioL/8 O 9et Income F utstanding ordinary shares O 9I O lower L/8

Question No. " >EAS@'In reconciling the Cash in an& of I9A Company with the an& statement alancefor the month

of 9o)emer 2-1, the following data are summarized'

Boo& deits for 9o)emer, including ctoer C( for notecollected, /hp@-,---

/hp


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d With $)e percent of its employees from minority groups, the di)ision iseRecti)ely complying.

So$ution: Aa' (orre)t. Witout now$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 auditale.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)ale property su%ect to a sale andleaseac& transaction.

! a.

"raditio re)i manu

.

"raditio longa manu

c.

"raditio cla)ium simolica

d.

"raditio constitutum possessorium

Question No. 10 >A7ERAE'(anagement of 4apler Corporation is considering a loc&ox system. "hean& will charge /-,--- annually for the ser)ice, which will sa)e the $rmapproximately /1,--- in processing costs. "he loc&ox system will reducethe Voat for cash receipts y three days. Assuming that the a)erage dailyreceipts are eKual to /--,---, and short5term interest costs are 1,calculate the ene$t or loss from adopting the loc&ox system. +indicate ifene$t or loss

Answer' P!10,000 ene?t

"he $rm sa)es money if the interest sa)ings is greater than theincreased cost of processing cash receipts. "he increased cost ofprocessing cash receipts is eKual to /1,--- +/-,--- an& charge Y/1,--- cost sa)ings. "he interest sa)ings is measured y multiplyingthe increase in a)erage funds y the short5term interest rate. "he $rmwill ha)e use of an additional /=--,--- +/--,--- [ = days in a)eragefunds. "herefore, the interest sa)ings is eKual to /1,--- +/=--,---


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[ 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-,--- isestalished 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 thepayment 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 erecorded only in the home o*ce>s oo&s upon estalishment andreplenishment of the agency>s wor&ing funds.

Question No. 12 >A7ERAE' "he memorandum records of 8mile Inc. for its de$ned ene$t plan show thefollowing alances'

/lant asset, FF2-1 /hp1,---,---!e$ned ene$t oligation, FF2-1 1,2--,---2-1 Information'

Current ser)ice cost 01-,---(ar&et yields on go)ernment ondsat year5end

-

Contriutions made /hp,


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9et interest expense +/1,2--,---51,---,--- x -

2-,---

/ast ser)ice cost as a result of planamendment

2,=--,---

"otal amount recognized in pro$t or loss /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 >A7ERAE' "he following amounts were ta&en from the statement of aRairs for Bagsi&Company'

Unsecured liailities without priority /hp;-,---8toc&holdersQ eKuity =@,---oss on realization of assets 1,---Lstimated administrati)e expenses that ha)enot een entered in the accounting records

,1--

Unsecured liailities with priority -,---

Dow much is the estimated payment for the unsecured liailities withoutpriority?

Answer: P"#,500

"otal liailities +;-,---J-,--- /--,---8toc&holders> eKuity =@,---

"otal assets 2@,---oss on realization of assets +1,---Administrati)e expenses +,1--/ayment to unsecured liailities withpriority

+-,---

9ew capital /0@,1--

Question No. 15 >%I66I(9;'

If e)erything else remains constant and a $rm increases its cash con)ersioncycle, which of the following will most li&ely to happen to the $rm>spro$taility?

A. IncreaseB. Increase if earnings are positi)eC. !ecrease!. 9ot e aRected.


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Answer' (Cash con)ersion cycle is the period from which in)entory is recei)edand processed +age of in)entory, sold to outside party +age ofrecei)ale and e)entually paid +age of accounts payale. Answer +cis 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 itultimately collects recei)ales. "he greater the time frame the moreli&ely the $rm will ha)e to orrow funds and incur interest expensewhich reduces pro$taility. Answers +a, +, and +d are incorrectecause the incurrence of interest will reduce pro$taility.

Question No. 1# >A7ERAE'An auditor is conducting a sur)ey of perceptions and eliefs of employeesconcerning an organization>s health5care plan. "he est approach toselecting a sample would e to'

a :ocus on people who are li&ely to respond so that a larger sample can e

otained. :ocus on managers and super)isors ecause they can also reVect theopinions of the people in their departments.

c Use strati$ed sampling where the strata are de$ned y marital and familystatus, 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)ailale time at the expense of &ey employees who are too usy withcompany wor& to respond.

Incorrect. (anagers and super)isors often do not ha)e the same needs and

perceptions as their suordinates and also may mispercei)e their )iews.)' (orre)t. Be)ause &iCerent e+!$oyees !roa$y a/e &iCerent

situations, nee&s, an& e!erien)es, strati?e& sa+!$in wou$& estensure tat a re!resentati/e sa+!$e wou$& resu$t.

d Incorrect. "his approach would produce a disproportionate numer of highlypaid 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 itsproduct. Under the terms of the contract for sale the manufacturerunderta&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 ofexperience, it is proale that there will e some claims under thewarranties.

8ales of /hp-,---,--- were made e)enly throughout 2-1.

At !ecemer =, 2-1 the expenditures for warranty repairs andreplacements for the product sold in 2-1 are expected to e made 1-


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percent in 2-1 and 1- percent in 2-@. Assume for simplicity that allthe 2-@ outVows of economic ene$ts related to the warranty repairsand 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%orrepairs and replacement costing ;- percent of sales price. "here is noreason to elie)e future warranty claims will e diRerent from itsexperience.

At !ecemer =, 2-1 the discount rate for expected cash Vows is-.21 percent for 2-@. :urthermore, an appropriate ris& ad%ustmentfactor to reVect uncertainties in the cash Vow estimates is anincrement of @ percent.

n !ecemer =, 2-1, the entity recognizes a warranty pro)isionmeasured at'

ANSWER: P!10#,000Lxpected cash Vow'

(inor repairs /-,---,--- x += x - /hp=-,---(a%or repairs and replacement

/-,---,--- x +2 x ;- A7ERAE':or So rder 9o. =@;, Lscalera Company incurred the following costs for themanufacture of 2-- units of a no)elty gadget'

riginal cost accumulation'

!irect materials /=,2--

!irect laor @,---:actory o)erhead +1- of direct laor 2,---

"otal /1=,2--

!irect costs of ten rewor&ed units'


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!irect materials /2,---!irect laor =,2--

"otal /1,2--

"he rewor& cost was attriutale to exacting speci$cations reKuired y

the %o and was charged to the speci$c order. "he units cost of Sorder 9o. =@; is'

Answer: P31# "otal Cost efore 4ewor& /1=,2--!irect cost of 4ewor&!( 2,---! =,2--:D +=,2--x1- ,


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re)enue)erstatement of in)entories 1,--- 2-,--- 2-,---Understatement of depreciationexpense on assets still held ,1-- =,1-- 2,---

Dow much must 4oerts recei)ed from the partnership?

Answer: P11,250 "otal income +-,---Js information systems auditor would proaly

ha)e more &nowledge of the organization>s computing systems.' (orre)t. ;e &istinuisin )ara)teristi) o orensi) au&itin is tenow$e&e nee&e& to testiy as an e!ert witness in a )ourt o $aw.A$tou a orensi) au&itor +ay !ossess te oter attriutes $iste&,te oraniDations inor+ation syste+s au&itor +ay a$so !ossesstese si$$s or now$e&e e$e+ents.

c Incorrect. A forensic auditor would not necessarily ha)e analytical ororganizational s&ills that are superior to those of the organization>s auditor.

d Incorrect. 8ee answer 6c7.


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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 aiological 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 coststo sell of a iological asset can change due to oth physical changeand price change in the mar&et. 8eparate disclosure of physical andprice changes is useful in appraising current period performance andfuture prospects, particularly when there is a production cycle of morethan one year. In such cases, an entity is encouraged to disclose, ygroup or otherwise, the amount of change in fair )alue less costs to sellincluded in pro$t or loss due to physical changes and due to pricechanges. "his information is generally less useful when the productioncycle 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 theestate tax return shows a gross )alue exceeding /__________

a. /,1--,---. /2,---,---c. /2,1--,---d. /=,---,---

ANSWER: BBASIS: 8ection ;-+A+= of the "ax Code, as amended

Question No. 23 >EAS@'WIL Company reported current assets of /=,;--,--- and currentliailities of /2,---,--- on its statement of $nancial position as of !ecemer


28/43

=, 2-. "he following items may ha)e een recorded incorrectly. "hecompany uses the periodic in)entory system.

a. oods purchased costing /22-,--- were shipped :B shipping point y a)endor on !ecemer 2@, 2-. WIL recei)ed and recorded the in)oice on!ecemer 2;, 2-, ut the goods were not included in WIL>s physicalcount of in)entory ecause they were not recei)ed until Sanuary , 2-1.

. n !ecemer =, 2-=, WIL purchased and recei)ed goods for /01-,---.oods were shipped :B seller. "he in)oice was recorded and paid Sanuary2-. oods are still unsold and were included in the physical count as of thereporting date.

c. oods purchased costing /2--,--- were shipped :B destination y a supplieron !ecemer 2s 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 WIL>s!ecemer =, 2-, physical count of in)entory at /=-,---.

What is the wor&ing capital ased on WIL>s statement of $nancial position?

Answer: P1,-00,000

Question No. 24 >A7ERAE'

+W !etermine the false statement.! a.

!onations etween spouses during marriage are )oid3 this rule applies topersons 6li)ing5in7 without the ene$t of a legal marriage and personsguilty of adultery or concuinage.

.

A conditional promise to pay renders an instrument to e non5negotialewhile a negotiale instrument issued, accepted or endorsed wheno)erdue is considered to e payale on demand.

c.

Consignment of goods is essentially an agency contract3 insol)ency of theconsignor results in the extinguishment of the agency.

d.

A pledge must e in a pulic instrument showing a description of the thing pledged and the date of the pledge to ind third persons3a 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 wherey all existingshareholders 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 =


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were 221 million, 2=- million and 21 million, respecti)ely. "he rights were exercisedimmediately 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 thispurpose?A.

8hort5term ene$ts

B.

8hare5ased payments

C.

"ermination ene$ts

!. 4eimursement of out5of5poc&et expenses

Answer: %

As enumerated in /A8 2, Related Part/ isclosures paragraph ;,compensation includes'

a short5term employee ene$ts, such as wages, salaries and socialsecurity contriutions, paid annual lea)e and paid sic& lea)e, pro$t5sharing and onuses +if payale within twel)e months of the end of theperiod and non5monetary ene$ts +such as medical care, housing,cars and free or susidised 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$ts, including long5ser)ice lea)e orsaatical lea)e, %uilee or other long5ser)ice ene$ts, long5termdisaility ene$ts and, if they are not payale wholly within twel)emonths after the end of the period, pro$t5sharing, onuses anddeferred compensation3

d termination ene$ts3 ande share5ased payment.

4eimursement of out5of5poc&et expenses is not included.

Question No. 2" >%I66I(9;'What is the ceiling on entertainment, amusement and recreation +LA4expense?

a. -.1- percent + of net sales taxpayers engaged in sale of goods orproperties3 or .-- percent + of net re)enue for taxpayers engaged in saleof ser)ices, including exercise of profession and use or lease of properties.


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. .-- percent + of net sales taxpayers engaged in sale of goods orproperties3 or -.1- percent + of net re)enue for taxpayers engaged in saleof 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 orproperties3 or .-- percent + of net re)enue for taxpayers engaged in saleof 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 orproperties3 or .-- percent + of net sales for taxpayers engaged in sale ofser)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 onentertainment, amusement and recreation (3AR* ex!ense:7S3&TI8# 5 &eiling on 3ntertainment, Amusement, and Recreation3x!ense 9 T-ere s-all be allo.ed a deduction $rom gross income $orentertainment, amusement and recreation ex!ense, as de4ned in Section "o$ t-ese Regulations, in an amount eui6alent to t-e actual entertainment,

amusement and recreation ex!ense !aid or incurred .it-in t-e taxable /earb/ t-e tax!a/er, but in no case s-all suc- deduction exceed 050 !ercent (2*o$ net sales (ie, gross sales less sales returns;allo.ances and salesdiscounts* $or tax!a/ers engaged in sale o$ goods or !ro!erties< or )00 !ercent (2* o$ net re6enue (ie, gross re6enue less discounts* $or tax!a/ersengaged in sale o$ ser6ices, including exercise o$ !ro$ession and use or leaseo$ !ro!erties=

Question No. 2 >EAS@' "he use of an analytical re)iew to )erify the correctness of )arious operatingexpenses would not e a preferred approach if'

a An auditor notes strong indicators of a speci$c fraud in)ol)ing theseaccounts.

perations are relati)ely stale and ha)e not changed much o)er the pastyear.

c An auditor would li&e to identify large, unusual, or non5recurring transactionsduring the year.

d perating expenses )ary in relation to other operating expenses, ut not inrelation to re)enue.

So$ution: Aa' (orre)t. I te au&itor a$rea&y sus!e)ts rau&, a +ore &ire)te& au&it

a!!roa) wou$& e a!!ro!riate. Incorrect. 4elati)ely stale 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 relatedto re)enue.


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Question No. 2- >EAS@'n Sanuary , 2-, Applied Co. acKuired -, /( onds for /;1,;@=. "heprincipal is due on Sanuary , 2-0 ut interest is due annually starting!ecemer =, 2-. "he yield rate on the onds is 2. "he entity adopts thecalendar year reporting. Applied Co. prepares and pulishes 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 thein)estment in onds at amortized cost should e reclassi$ed to held for tradingsecurities on reclassi$cation date. n ctoer to !ecemer =, 2-1, the ondswere 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)toer 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 >A7ERAE'ABC Company has a uilding that it occupies as o*ce space. !uring theyear, 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


32/43

fair )alue. Dow should ABC Company account for the resulting increase incarrying amount of the uilding?A.

"he increase is recognized in other comprehensi)e income to the extent thatthe increase re)erses a pre)ious impairment loss.

B.

"he increase is recognized as part of other comprehensi)e income orre)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 ao)e.

Answer: B

/aragraph @2 of /A8 -, In6estment Pro!ert/ "4A98:L48Up to the date when an owner5occupied property ecomes anin)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 carryingamount of the property in accordance with /A8 @ and its fair )alue inthe same way as a re)aluation in accordance with /A8 @. In otherwords'

+a any resulting decrease in the carrying amount of the property isrecognized in pro$t or loss. Dowe)er, to the extent that an amount isincluded in re)aluation surplus for that property, the decrease isrecognised in other comprehensi)e income and reduces the re)aluationsurplus within eKuity.

+ any resu$tin in)rease in te )arryin a+ount is treate& aso$$ows:+i to the etent tat te in)rease re/erses a !re/iousi+!air+ent $oss or tat !ro!erty, te in)rease is re)oniDe&in !ro?t or $oss. "he amount recognized in pro$t or loss does notexceed the amount needed to restore the carrying amount to thecarrying amount that would ha)e een determined +net ofdepreciation had no impairment loss een recognized.+ii any re+ainin !art o te in)rease is re)oniDe& in oter)o+!reensi/e in)o+e an& in)reases te re/a$uationsur!$us witin e*uity. n suseKuent disposal of the in)estment

property, the re)aluation surplus included in eKuity may etransferred to retained earnings. "he transfer from re)aluationsurplus to retained earnings is not made through pro$t or loss.

Question No. 32 >A7ERAE'At the eginning of the year entity D in)ests /1 million to acKuire a =- eKuityinterest in an associate, entity A. In addition, D lends /; million to the associate, utdoes not pro)ide any guarantees or commit itself to pro)ide further funding. DQs loan


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to A is considered part of the net in)estment in the associate. Assume the associategenerated a /2- million loss during the year.

!etermine the eKuity interest in the associate and the loan carrying )alue.

Answer: P0 F P+i$$ion

Question No. 33 >%I66I(9;'8ummary ad%usted trial alance for the home o*ce and ranch of "SCorporation at !ecemer =, 2- are as follows'

Dome o*ce Branch!eits'

ther assets /1=-,--- /@1,---In)entories, Sanuary , 2- 1-,--- 1,---Branch 2--,--- 5/urchases 1--,--- 58hipments from home o*ce 5 2-,---Lxpenses 2-,--- 1-,---!i)idends --,--- 5

"otal deits /,1--,---

/ 1--,---

Credits'ther liailities / ;-,--- / 21,---Capital stoc& 1--,--- 54etained earnings --,--- 5Dome o*ce 5 01,---Unrealized pro$t in ranchin)entory F loading -,--- 58ales 1=0,1-- =--,---8hipments to ranch 2--,--- 5Branch pro$t @2,1-- _______

"otal credits /,1--,---

/ 1--,---

Additional information'. "he home o*ce ships merchandise to its ranch at 2- of home

o*ce cost.2. In)entories at !ecemer =, 2- are /0-,--- for the home o*ceand /@-,--- for the ranch. "he ranch in)entory is at transferprices.

Dow much is the net income of the home o*ce and the ranch +ownoo&s and in the home o*ce>s oo&s for the year ended !ecemer=, 2-?


34/43

Answer: P13",500F P#2,500Dome o*ce'8ales /1=0,1-

-Cost of sales +1-,---J1--,---52--,---50-,--- +2s oo&s 21,---4ealized pro$t +221,--- x 2-F2- =0,1--9et income, per home o*ce>s oo&s /@2,1--

Question No. 34 >%I66I(9;'8arah Company, a manufacturing entity, owns 01 of the ordinary shares of8andra Company, an in)estment entity. 8andra Company owns @- of theordinary shares of Nanessa Company, an insurance entity. 8andra Companyhas control o)er Nanessa Company. In 8arah Company>s consolidated$nancial statements, should consolidation accounting or eKuity method eused for 8andra Company and Nanessa Company?A.

Consolidation used for 8andra and eKuity method used for Nanessa.

B.

Consolidation used for oth 8andra and Nanessa

C.

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 acontrolling $nancial interest in 8andra through a 01 direct ownership.

"he intercorporate stoc& ownership of 8arah with respect to Nanessa is1. 8andra owns @- of Nanessa and 8arah owns 01 of 8andra. "hus,indirectly, 8arah owns 1 of Nanessa +01 x @-. :urther, 8andracontrols Nanessa.


35/43

Question No. 35 >A7ERAE'Lntity acKuires Lntity D and as part of the arrangement, Lntity agrees to pay anadditional 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 trailing2 months are / million or less Y nothing will e paid.

• if the trailing 2 monthsQ earnings in two yearsQ time are etween / millionand /2 million Y 2 [ 2 month earnings will e paid.

• if the trailing 2 monthsQ earnings in two yearsQ time is greater than /2million Y = [ 2 month earnings will e paid.

At the date of acKuisition, the possile twel)e5month earnings of Lntity D intwo 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 ediscounted 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,---osses1,---Nanishing deduction=-,---8tandard deduction

,---,--- 9et share of the sur)i)ing spouse in the con%ugalFcommunity estate


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a. /;-,--- and /2,11-,---. /;-,--- and /2,@1-,---c. /;;-,--- and /2,11-,---d. /;;-,--- and /2,@1-,---

ANSWER: A

8olution'rdinary 8pecial

:amily home +(aximum amount / ,---,---:uneral +(aximum amount / 2--,---

Sudicial expenses 1--,---(edical expenses +(aximum amount1--,---Claims against the estate 2--,---

"axes 21,---osses 1,---Nanishing deduction

=-,---8tandard deduction ,---,---Amounts recei)ale under 4epulic Act ;02-,---

"otal P -40,000 P2,550,000

Question No. 3"+W A newly organized corporation issues -,--- no5par shares with anissue 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 automoiles. !ue torecent Vooding, the only recordFdocument a)ailale related to the saidpurchase was an o*cial receipt with an amount of / ,1,12- +inclusi)e of NA" of / 2=,


37/43

Question No. 3- >%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&enfrom the records of the Company'

8ale of school supplies Y !omestic / 1@-,---8ale of school supplies Y Lxport +in U8! 2


38/43

n purchase of computerE%I66I(9;'8torm>s Lnd Corporation, organized in 2--, was engaged in a large5scaledistriution of poultry products. :or the taxale year 2-1, the companyreported the following result of operations'

8ales /=.2 million8ales discounts -.2 millionBeginning in)entory .< millionCost of goods a)ailale for sale =.- millionLnding in)entory .- millionperating expenses -.0 millioneneral 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

Sales P%"million

'ess: Sales discounts0"

million

#et salesP%0

million'ess: &ost o$ Sales

&ost o$ goods a6ailable $orsale P%0million

'ess: 3nding in6entor/ )0million

"0million

Grossincome

P )0million

'ess: 8S(?02*

0?0million


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Taxableincome

P 0@0million

Tax rate %02Tax due(8S* P)0,000

M&IT ("2* P"0,000

Income tax due (lo.er* P20,000

Question No. 41 >A7ERAE'Candice Company reported net income of /=,--- for the year ended !ecemer =,2-= which included depreciation expense of /A7ERAE'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 !ecemer = annually in arrears andis to e redeemed at par on !ecemer =, 2-


40/43

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 assetsform a disposal group, and are measured as follows'

Carrying amountefore

reclassi$cationas held for sale

Carrying amountas re5measured

immediatelyefore

reclassi$cationas held for sale

oodwill / ,1--,--- / ,1--,---//L +carried at re)aluedamount

,@--,--- ,---,---

//L +carried at cost 1,0--,--- 1,0--,---In)entory 2,--,--- 2,2--,---In)estment in eKuitysecurities

,


41/43

Question No. 4# >%I66I(9;'A lessee is reKuired to pay a refundale deposit of /--,--- to the lessor at theinception of an operating lease for which no interest is recei)ale. "he $xed lease termis - years. "he mar&et interest rate is 1 +i.e., that is the interest rate the lessorwould ha)e to pay if he orrowed /--,--- for a - year term from a third party. "hedate of inception is :eruary , 2-=.

Assuming the annual lease payment is /@-,---, determine the net amount recognizedin lessee>s pro$t or loss as of !ecemer =, 2- applying PAS )D > 'eases andFinancial instruments standards.(Round PV $actors to ? decimal !laces*

Answer: P60,61 !e"re#se

Question No. 4" >%I66I(9;'

At the end of Sanuary 2-=, the city go)ernment pro)ided 8U9SI Company a zerointerest /=-,---,--- =5year loan used y the Company in acKuiring a uilding on thesame date. "he pre)ailing mar&et rate of interest for this type of loan is


42/43

practical capacity. If -- of practical capacity had een selected instead,how would the reported unfa)orale spending and )olume )ariances eaRected?

8pending Nariance Nolume NarianceA. Increased UnchangedB. Increased IncreasedC. Unchanged Increased!. Unchanged Unchaged

Answer' ( "he reKuirement is to determine how unfa)orale spending and output le)el+)olume )ariances computed using the three5)ariance method would eaRected if the estimated acti)ity le)el were increased. An increase in theacti)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, anincrease in acti)ity le)el used to allocate o)erhead will not aRect thestandard )ariale application rate +8N4. "his rate is computed using thehigh5low method or regression analysis. "he diagram for the =5 )ariancemethod 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. "heoutput le)el )ariance is computed y comparing the udgeted amount oftotal o)erhead costs for outputs achie)ed with the total amount of o)erheadapplied. Both computations use 8N4, ut only the applied $gure uses the 8:4.In this prolem, the output le)el )ariance is unfa)orale indicating that theudgeted amount is more than the applied amount. When the 8:4 is loweredwith the increase in acti)ity le)el, less cost will e applied for e)ery unitproduced. "he output le)el )ariance will therefore e increased and ecomemore unfa)orale.

Question No. 50

Pou ha)e otained the latest actuarial report prepared for 8DU!5BL Corp>spension plan. Information aout the actuarial reports are presented elow'From t-e ecember %), "0)5 actuarial re!ort


43/43

2F=F2-

2F=F2-1

/resent )alue of de$ned ene$toligation

=,@--,--- =,1--,---

:air )alue of plan assets at end of year

=,;--,--- =,

naqdown final questions

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