1 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 P 20,000,000. Other details follow: 2014 Cost incurred during the year
2015
P 3,000,000
P 15,750,000
12,000,000
-0-
Billing during the year
3,600,000
15,400,000
Collections during the year
2,500,000
15,500,000
Estimated costs to complete, as of December31
The portion of the total contract price to be recognized as revenue in 2014 is 2 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 Php 0.05 per ton of marble quarried. Other data relevant to the requirements are: Estimated total reserves, tons
Php 60,000,000
Tons quarried through December 31, 2014
4,000,000
Tons quarried, 2014
1,600,000
Sales, 2014
1,200,000
How much would the depletionfor 2014 for financial reporting purposes? 3 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 4 Which of the following situations is most likely to be the subject of a written interim report to the engagement client? A. 70% 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 5. (LW) Which of the following terms is normally not associated with extinguishing an obligation through process of novation? A. Expromission B. Subrogation C. Delegacion D. Remission 6. 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 7. The inventory on hand at December 31, 2015 for FLASH Company is valued at a cost of Php 947,800. The following items were not included in the inventory amount: A. Purchased goods in transit, shipped FOB destination invoice price Php 32,000 which included freight charges of Php 1,600. B. Goods held on consignment by FLASH Company at a sales price of Php 28,000, including sales commission of 20% of the sales price C. Goods sold to ARROW Company, under terms FOB destination, invoiced for 18,500 which includes Php 1,000 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 Php 3,000. E. Goods out on consignment to COCO Company, sales price Php 36,400. Assuming that the Company’s selling price is 140% of inventory cost, the adjusted cost of Arrow Company’s inventory at December 31, 2015 should be: 8.
Diamante Motors sells locally manufactured jeeps on instalments. Information presented below relates to Diamante’s operations for the last three calendar years.
Cost of instalment sales Gross profit on instalment sales
2015
2014
P 8,765,625
P 7,700,000
32%
2013 P 4,950,000
30%
28%
Outstanding instalment rec’l, Dec. 31: From 2015
P 9,728,125
From 2014
3,025,000
From 2013
P 8,387,500 1,512,500
P 4,812,500
Diamante Motors uses the instalment method of accounting How much is the total realized gross profit for calendar year 2015? 9. 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 P 1,500 or one (1) sack of 50 kg rice per month amounting to not more than P 1,500; 10. 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. In the period paid B. In the period incurred C. At the date the royalty agreement began D. At the date the royalty agreement expired
Average
1. A race track bettor won on the following bets: On double, a bet of P200 and divided 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 P 1,000 and dividend of P 150 per P 50 ticket The total percentage tax due from the winnings is 2. The following are types of hedging relationships except? A. Fair Value Hedge B. Cash Flow Hedge C. Hedge of a Net Investment in a Foreign Operation D. Hedge of Foreign Currency Risk of a Firm Commitment 3. Spouses Ramsay and Sansa sold their family home, a capital asset for P 10,000,000. It was acquired in 1980 at P 3,000,000. The fair market value as determined by the BIR is P 12,000,000 but the fair market shown in the schedule of values of the City Assessor is P 11,000,000. Later, the spouses utilized P 8,000,000 for the acquisition of their new family home. The capital gains tax due is 4. Which statement is incorrect? A. 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. B. The cost of an internally generated asset comprises all directly attributable costs necessary to create, produce and prepare the asset for its intended use. C. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall be recognized as intangible assets D. Internally generated goodwill shall not be recognized as an intangible asset 5. King’s Landing Corporation has the following sales during the month: Sales: Sales to private entities subject to 12%
P 50,000
Sales 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
P 5,000
Input tax on zero-rated sales
3,000
Input tax on sale of exempt goods
2,000
Input tax on depreciable capital goods Not attributable to any specific activity (pertains to monthly amortization for 60 months)
20,000
How much is the creditable input tax for the month? 6. On January 2, 2014, Keith Urban Corporation purchased 70% of the ordinary shares of Mimi Company for P 4,675,000. At the date, Mimi Company had P 4,887,500 of ordinary shares outstanding and accumulated profits of P 1,572,500. Mimi’s 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. Mimi’s remaining assets had a book value to their fair values. All intangible assets except goodwill are expected to have remaining lives of 10 years. Noncontrolling interest shall be measured at fair value. The income and dividend figures for both Keith Urban and Mimi Company are as follows: Income Keith Urban Corporation:
2014 P 1,572,500 2015
Mimi Company:
1,785,000
Dividends P 425,000 510,000
Income
Dividends
2014
P 340,000
P 55,000
2015
569,500
127,500
Keith Urban’s income shown does not include any dividend income from Mimi. Keith Urban’s 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? 7.
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
Market B
Market C
Php 26
Php 25
Php 23
Transaction costs in that market
(3)
(1)
(1)
Costs to transport the asset to the market
(2)
(2)
(2)
Net amount that would be received
21
23
20
Price that would be received
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?
8. The McGraw Company manufactures and sells Abriza handbags to assorted prints. Data for 2014 follows: Selling price per piece
P 8.00
Variable cost per piece
P 2.00
Number of handbags to breakeven
25,000
Net post-tax income (35% tax rate)
P 5,850
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 in 2014 (27,000) 9. (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 enticed to cast a total of A. 20 votes, distributed equally among 5 candidates that the stockholder wishes to elect B. 100 votes, distributed equally among 5 candidates that the stockholder wishes to elect C. 100 votes , all casted in favour of a single candidate that the stockholder wishes to elect D. 500 votes, with majority of votes casted in favour a single candidate and remaining votes distributed equally among 4 other candidates that the stockholder wishes to elect 10. 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 quarter’s 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
Difficult 1. Cersei owns shares of stocks of Castle Black Corporation which she purchased several years ago for P 1 million. The stocks have a current fair value of P 10 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 P 5 million. Assuming Myrcella subsequently sold all the shares of stocks to Ellaria Sand for P 10 million, how much did Cersei gain on the sale? 2. 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 3. Which of the following is not a source of obligation? A. Culpa Aquiliana
C. Negotiorum Gestio
B. Mora Accipendi
D. Solutio Indebeti
4. On April 1, 2014 a company engages in the development of a property, which is expected to take 5 years to complete, at a cost of P 6M. The statements of financial position at December 31, 2013 and December 31, 2014, prior capitalization of interest are as follows:
Development property
12/31/13
12/31/14
P
P 1,200,000
Other assets
6,000,000
6,000,000
P 6,000,000
P 7,200,000
P 2,500,000
P 2,500,000
Loans 5.5% debenture stock Bank loan at 6% per annum
-
Bank loan at 7% per annum
1,200,000
1,000,000
1,000,000
P 3,000,000
P 4,700,000
Shareholder’s equity
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- P 600,000; July 1- P 400,000; October 1 – P 200,000. 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) 5. 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 Company’s consolidated financial statements, should consolidation accounting or equity method be used for Sandra Company and Vanessa Company? A. Consolidation used for Sandra and equity method used for Vanessa B. Consolidation used for both Sandra and Vanessa C. Equity method used for Sandra and Consolidation used for Vanessa D. Equity method used for both Sandra and Vanessa 6. Jon Snow Company had the following results of operations for the taxable year 2015:
Gross Income
P 500,000
Business expenses
200,000
Capital Gain (capital asset held for one (1) year) P 50,000 Capital Loss (capital asset held for 24 months)
P 100,000
How much is the taxable income of Jon Snow Company for the year 2015? 7. On December 31, 2015, an entity has an asset of Php 4,000 for interest receivable that will be taxed when the cash is received in 2016. Tax is payable at 20 percent on the first Php 500,000 of taxable profit earned and 30 percent on any remainder. In 2015, the entity earned taxable profit of Php 450,000. In 2016, the entity expects to earn taxable profit of Php 550,000. What amount should the entity recognize for the deferred tax liability relating to the interest receivable?
8. During 2014, Diana Corp. experienced the following power outages: Number of outage per month
Number of months
0
3
1
2
2
4 3
3 12
Each power outage results in out-of-pocket costs of P 400. 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? 9. 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. Only statement I is false
C. Only statement III is false
B. Only statement II is true
D. All of the statements are true
10. What computer-assisted audit technique would an auditor use to identify a fictitious or terminated employee? A. Parallel simulation of payroll calculations B. Exception testing for payroll deductions C. Recalculations of net pay D. Tagging and tracing of payroll tax-rate changes
SEMI FINALS ROUND 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.
II.
Employees hired for sensitive positions are not subjected to background checks.
III.
Managers do not have access to reports that profile overall performance in relation to other benchmarked organizations.
IV.
Management has not taken corrective action to resolve past engagement observations related to inventory controls.
A. I and II only B. I and IV only C. II and III only D. II and IV only
2. Ant (37y/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 Dog can collect from Ant? 3. Boyz Corporation developed in the following income statement that shows the expected percentage results at a sales level of P 1,400,000:
Sales
100%
Cost of Sales
60%
Gross Margin
40%
Other expenses
30%
Income
10%
The cost of sales is all variable. Commissions are computed at 5% of sales, and are included in ‘other expenses’ category. Compute for Boyz Corporation’s margin of safety. 4. Being made liable to a third person, a partner by estoppel may be considered a A. Silent partner B. Secret partner C. Nominal partner D. Dormant partner 5. As of December 31, 2014, Passive Company has the following deferred tax items in its accounting records: Deferred tax asset Deferred tax liability
Php 443,800 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 the tax rates? 6. If the ending inventory is understated, then A. Current ratio is overstated and EPS is understated B. Current ratio is understated and EPS is overstated C. Current ratio is overstated and EPS is overstated D. Current ratio is understated and EPS is understated 7.
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,
Php 800,000
Php 60,000 Book credits for November, including NSF of Php 20,000 and service
620,000
Charge of Php 800 for October Bank credits for November including CM for November for bank loan of
700,000
Php 100,000 and October deposit in transit for Php 80,000 Bank debits for November including October outstanding checks of
600,000
Php 170,800 and November service charge of Php 200 What is the amount of the outstanding checks for November? 8. While testing a division’s 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 company’s policies C. The company’s policies cannot be audited and hence cannot be enforced D. With five percent of its employees from minority groups, the division is effectively complying 9. A constructive delivery of an immovable property subject to a sale and leaseback transaction. A. Traditio brevi manu B. Traditio longa manu C. Traditio clavium simbolica D. Traditio constitutum possessorium 10. Management of Rappler 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)
11. 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 funds 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 12. The memorandum records of Smile Inc. for its defined benefit plan, show the following balances: Plant asset, 01/01/2015 Defined benefit obligation, 01/012015
P 5,000,000 5,200,000
2015 Information: Current service cost Market yields on government bonds at year-end Contributions made Benefits paid
750,000 10% P 1,800,000 480,000
Past service cost as a result of plan amendment
2,300,000
Plan asset, 12/31/2015
8,000,000
Defined benefit obligation, 13/31/2015
8,350,000
The fair value of the plan asset at year-end includes the unpaid contribution 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 P700,000 and P300,000 respectively. Determine the amount recognized in profit or loss in accordance with PAS 19 Employee Benefits.
13. Identify the term that does not belong to the group: prescription, performance, presentation, merger.
14. The following amounts were taken from the statement of affairs for Bagsik Company: Unsecured liability without priority
P 90,000
Stockholder’s equity
36,000
Loss on realization of assets
45,000
Estimated administrative expenses that have not
4,500
been entered in the accounting records Unsecured liability with priority
10,000
How much is the estimated payment for the unsecured liabilities without priority? (81,000)
15. If everything else remains constant and a firm increases its cash conversion cycle, which of the following will most likely to happen to the firm’s profitability? A. Increase B. Increase if earnings are positive C. Decrease D. Not be affected 16. An auditor is conducting a survey of perceptions and beliefs of employees concerning an organization’s 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
17. 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 P 10,000,000 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 2016 outflows of economic benefits related ti rye 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 replacements 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:
18. 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
P 13,200
Direct Labor Factory Overhead( 150% of direct labor)
16,000 24,000
Direct costs of ten reworked units: Direct Materials
P 2,000
Direct Labor
3,200
Total
P 5,200
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: 19. Caine, Osman, and Roberts formed a partnership on Jan. 1, 2012, agreeing to distribute profits and losses in the ratio of their original capitals. Original investments were P625,000, P250,000, P 125,000 respectively. Earnings of the firm and drawings by each partner for the period 2012-2014 follows: Drawings Net income(loss) 2012
Caine
P 440,000 P150,000
Osman P78,000
Roberts P52,000
2013
185,000
150,000
78,000 52,000
2014
(105,000)
100,000
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 Robert’s interest was paid in cash. The following items were revealed in the course of the audit. End of 2012 Understatement of accrued expenses
P
4,000
Understatement of accrued revenue Overstatement of inventories Understatement of depreciation expense
P
End of 2013 5,000
2,500 15,000
P
on assets still held
How much must Robert receive from the partnership?
6,500
1,000 20,000
1,500
End of 2014
1,500 20,000
3,500
2,000
20. 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 organization’s 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 by the law C. Superior analytical skill 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. 21. 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. Physical Change only B. Price Change only C. Total Change in value D. Physical Change and Price Change (D) 22. On estate taxation, a statement duly certified by a CPA is necessary if the estate tax return shows a gross value exceeding P________ 23. 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 Wiggle’s 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 Wiggle’s 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 Wiggle’s December 31,2014 physical count of inventory at P130,000 What is the working capital based on Wiggle’s statement of financial position? 24. Determine the false statement. A. Donations between spouses during marriage are void; this rule applies to persons “living-in” without the benefit of a legal marriage and persons guilty of adultery or concubinage. B. 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. C. Consignment of goods is essentially an agency contract, insolvency of the consignor results in the extinguishment of the agency. D. A pledge must be in a public instrument showing a description of the thing pledged and the data 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.
25. 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? 26. PAS 24 requires disclosure of compensation of key management personnel. Which of the following would not be considered “compensation” for this purpose? A. Short-term benefits B. Share-based payments C. Termination benefits D. Reimbursement of out-of-pocket expenses 27. What is the ceiling on entertainment, amusement, and recreations (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. 28. The use of an analytical review rot verify the correctness of various operating expenses would not be a preferred approach if: 14,00 10,00 Carrying Amount 0 A. An auditor notes strong indicators of a specific fraud involving these accounts.
Carrying Amount
0 15,00 0
12,00 Fairover Value Valueare relatively stable B. Fair Operations and have not changed much the past year. 0
C. An auditor would like to identify large, unusual, or non-recurring transactions during the year.
Value in Use
Value in Use
9,000
Legal Fees
1,500
Legal Fees
Termination
1,000
Termination
13,500
D. Operating expenses vary in relation to other operating expenses, but not in relation to revenue. 29.
1,000
500
On January 1, 2014, Applied Co. acquired 10%, P1M bonds for P951,963. The principal is due on January benefits benefits 1, 2017 but interest is due annually starting December 31,2014. The yield rate on the bonds is 12%. The 500 entity adopts the calendar year reporting. Applied Co. prepares and publishes quarterly reports in 500 Documentary Documentary 14,00 Carrying Amount 15,00 Carrying Amount accordance by SEC.tax stamp stamp with taxPAS34- Interim Financial Reporting as required 0
0
In August 1, 2015, ABC Co. changed its business model. It was ascertained that the investment in bonds 2,000 Accumulated 5,500 Accumulated at amortized cost should be reclassified to held for trading securities on reclassification date. On October Depreciation Depreciation 1 to December 31, 2015, the bonds were quoted at 103. On January 1, 2016, the bonds were quoted at 104. 15,00 Fair Value 12,00
Fair Value
0
0 PFRS 9 - Financial Instruments last 2013. Determine the Assume that Applied Co. early adopted reclassification date. 13,50 Value in Use 10,50 Value in Use
30.
0
0
Legal Fees
1,500
Legal In which of Fees the following will an entity not record impairment loss? (choose one or more) A. Termination
1,000
benefits
Documentary stamp tax
500
B.
1,000
Termination benefits
500
Documentary stamp tax
500
C.
D.
31. 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 Company’s books from cost to fair value. How should ABC Company account for the resulting increase in carrying amount of the building? A. The increase is recognized in other comprehensive income to the extent that the increase reverses a previous impairment loss. B. The increase is recognized as part of other comprehensive income or revaluation surplus within equity, if no previous impairment has been recorded C. The increase is recognized directly to profit or loss D. None of the above
32. 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. 33. Summary adjusted trial balance for the home office and branch of TJ Corporation at December 31, 2014 are as follows: Home Office
Branch
Debits: Other assets
P 530,000
P 165,000
50,000
45,000
Inventories, January 1,2014 Branch
200,000
-
Purchases
500,000
-
Shipments from home office
-
240,000
Expenses
120,000
Dividends
100,000
Total Debits
50,000 -
P 1,500,000
P 500,000
P 90,000
P 25,000
Credits Other liabilities Capital Stock
500,000
-
Retained Earnings
100,000
-
Home office Unrealized profit in branch inventor/ loading
100,000
175,000 -
Sales
537,000
Shipments to branch
200,000
-
62,500
-
Branch Profit Total credits
P1,500,000
Additional Information 1. The home office ships merchandise to its branch at 120% of home office cost.
300,000
P 500,000
2. Inventories at December 31, 2014 are P70,000 for the home office and P600,000 for the branch. The branch inventory is at transfer price. How much is the net income of the home office and the branch (own books and in the home office’s books) for the year ended December 31, 2014? 34. 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 Company’s consolidated financial statements, should consolidation accounting or equity method be used for Sandra Company and Vanessa Company? A. Consolidation used for Sandra and equity method used for Vanessa B. Consolidation used for both Sandra and Vanessa C. Equity method used for Sandra and consolidation used for Vanessa D. Equity method used for both Sandra and Vanessa 35. 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 x 12 month earnings will be paid. - if the trailing 12 months’ earnings in two years’ time is greater than P2 million - 3 x 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. 36. 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 Amounts receivable under Republic Act 4917
800.000 20,000
How much are the ordinary and special deductions from the gross estate, respectively? 37. 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? 38. 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 P123,840). 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? 39. 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
P 560,000 1,120,000 520,000 160,000 400,000
Purchases of school supplies and novelty items
1,150,000
Purchase of computer (used in all transactions)
180,000
Compute for the VAT payable/(Overpayment). 40. Storm’s 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
P 3.2 million
Sales discounts
0.2 million
Beginning inventory Cost of goods available for sale
1.8 million 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 Company’s income tax? 41. 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 rent)**
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?
42. 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 amortized cost.
On January 1, 2014, it unconditionally sells the right to receive the remaining five interest payments to a back. The derecognition provisions of IAS 39 (IFRS 9) are applied to the Interest payments as in 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. 43. A corporation organized for business or profit is called Civil Corporation while one which is organized for public charity is called _________. 44. 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
Carrying amount as
reclassification as held re-measured immediately for sale Goodwill
before reclassification as P 1,500,000
held for sale P 1,500,000
PPE (carried at revalued amount)
4,600,000
4,000,000
PPE (carried at cost)
5,700,000
5,700,000
Inventory
2,400,000
2,200,000
Investment in equity securities Total
1,800,000 P16,000,000
1,500,000 P14,900,000
The entity measures the fair value less costs to sell of the disposal group as P13,000,000 Determine the carrying value of the PPE (carried at revalued amount) after classifying the group as held for sale. (round off amounts in nearest peso)
45. What is in the scope or affected by IFRS 15? I.
Contracts with customers
II. Sale of non-financial assets that are not an output of the entity’s ordinary activities (e.g., PPE, leasing assets) III. Leasing contracts IV. Insurance contracts V. Financial instruments and certain other contracts VI. Certain non-monetary exchanges VII. Certain put options on sale and repurchase agreement 46. 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 lessee’s profit or loss as of December 31,2014 applying PAS 17- Leases and Financial Instruments standards (Round PV factor to 4 decimal places) 47. At the end of January 2013, the city government provided SUNJI Company a zero interest P30,000,000 3year loan used by the company in acquiring a building on the same date. The prevailing market rate of interest for this type 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 date of acquisition.
Applying provisions of PAS 20 - Accounting fro 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) 48. A written contract of sale of a lot is made between two parties for P50,000. 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
49. During 2014, a department’s 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? Spending Variance
Volume Variance
A.
Increased
Unchanged
B.
Increased
Increased
C.
Unchanged
Increased
D.
Unchanged
Unchanged
50. You have obtained the latest actuarial report for SHOULD-BE Corp’s pension plan. Information about the actuarial reports are presented below: From the December 31, 2015 actuarial report
12/31/2014
12/31/2015
Present value of defined benefit obligation
3,600,000
3,500,000
Fair value of plan assets at end of year
3,900,000
3,800,000
Current service cost for year
345,000
320,000
Benefits paid in year
240,000
230,000
Contributions paid in year
430,000
410,000
4.5%
5.0%
Discount rate at end of year
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 off any components in the computation to the nearest thousands) Indicate if debit or credit.
