ACCOUNTING REVIEWER

REGION 12
THEORY OF ACCOUNTS
1.

2.

3.

Which of the following is not a qualitative characteristic of financial reporting?

a. Reliability
c. Comparability
b. Going concern
d. Relevance
Which of the following statements about consistency is true?
The method of accounting can never be changed the entity has to follow the accounting method
consistently period after period.
b.
The method of accounting can be changed however, if the method is changed, it must be highlighted in
the financial statement.
c.
Method of accounting can be changed if standards require. No disclosure is required in the financial
statements.
d.
Companies must sell the same product consistently from one period to the next.
a.

An
a.
b.
c.
d.

4.
a.
b.
c.
d.

investment property should be measured initially at

Cost
Cost less accumulated impairment losses
Depreciable cost less accumulated impairment losses
Fair value less accumulated impairment losses

An asset is impaired when the carrying amount is

Higher than fair value less costs to sell but lower than value in use.
Lower than fair value less costs to sell but higher than value in use.
Higher than fair value less costs to sell and value in use.
Lower than fair value less costs to sell and value in use.

5.

When it is difficult to distinguish between a change of estimate and a change in accounting policy, then an entity
should
a. treat the entire change as a change in estimate with appropriate disclosure
b. Apportion, on a reasonable basis, the relative amounts of change in estimate and the change in accounting
policy and treat each one accordingly
c. Treat the entire change as a change in accounting policy
d. Since this change is a mixture of two types of changes, it is best if it is ignored in the year of the change; the
entity should then wait for the following year to see how the change develops and then treat it accordingly

6.

Interim financial reports should include as a minimum

a. A complete set of financial statements complying with PAS 1
b. A condensed set of financial statements and selected notes
c. A balance sheet and income statement only
d. A condensed balance sheet, income statement, and cash flow statement only

7.

XYZ Inc. owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive industry and thus has
significant other property, plant, and equipment that it carries in its books. It decided to revalue its property, plant,
and equipment. The company's accountant has suggested the alternatives that follow. Which one of the options
should XYZ Inc. select in order to be in line with the provisions of PAS 16?
a. Revalue only one-half of each class of property, plant, and equipment, as that method is less cumbersome and
easy compared to revaluing all assets together
b. Revalue an entire class of property, plant, and equipment
c. Revalue one ship at a time, as it is easier than revaluing all ships together
d. Since assets are being revalued regularly, there is no need to depreciate

8.

The following expenditures would qualify as an exploration and evaluation asset under PFRS 6
I.
Expenditure for acquisition of rights to explore
II.
Expenditure for exploratory drilling
III.
Expenditures related to the development of mineral resources

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IV.

Expenditure for activities in relation to evaluating the technical feasibility and commercial viability of
extracting a mineral resource
a. I and II
c. I, II and IV
b. III and IV
d. I, II, III and IV
9.

Which statement is incorrect concerning internally generated intangible asset?

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.

10.

Which of the following is true?

a. Trading securities can be classified as current or noncurrent depending on management's intent.
b. Held-to-maturity securities should not be classified as current under any circumstance.
c. Trading securities should not be classified as current under any circumstance.
d. Available-for-sale securities can be classified as current or noncurrent depending on management's intent.

BUSINESS LAW
1.

Juan de la Cruz signs a promissory note payable to Pedro Lim or Bearer, and delivers it personally to Pedro Lim. The
latter somehow misplaces the said note and Carlos Ros finds the note lying around the corridor of the building.
Carlos Ros endorses the promissory note to Juana Bond, for value, by forging the signature of Pedro Lim. May
Juana Bond hold Juan de la Cruz liable on the note?
a. No, because forgery is a real defense
b. Yes, because the forge signature is not necessary for the negotiation of the instrument.
c. No, because Juana Bond cannot become a holder because the indorsement is forged.
d. Yes, because forgery is just a personal defense.

2.

The term of office of Mr. Carlito as member of the board is about to expire on December 10, 2007. On December 12,
2007 a special meeting was called to fill up the vacancy in the board. Mr. Vladimir got the highest number of votes;
however Mr. Vladimir is not a shareholder.
a. Mr. Carlito is no longer a director because Mr. Vladimir is qualified to be a director
b. Mr. Vladimir is the new director because he got the highest number of votes.
c. Mr. Vladimir is entitled to office because he got the highest number of votes and the term of Mr. Carlito is
already expired.
d. Mr. Carlito is entitled to hold office despite that his term is already expired because Mr. Vladimir is not qualified
to be a director not being a shareholder. Hence, the incumbent director Mr. Carlito shall serve until his
successor is elected and qualified.

3.

Who among the following are liable for warranties as well as secondary liability?
a. Drawer
c. Qualified indorser
b. Maker
d. Unqualified indorser

4.

Which of the following transactions or contracts involving the sale or financing of real estate on installment payments
is not covered by Maceda law:
a. Residential
c. Apartment
b. Condominium
d. Commercial Building

5.

These are adjudicated in order that a right of the plaintiff, which has been violated or invaded by the defendant, may
be vindicated or recognized:
a. Moral damages
c. Nominal damages
b. Temperate damages
d. Actual damages

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6.

And B are debtors of C for P2,000,000. As consent was obtained by C thru fraud.
a. C can collect the entire P2,000,000 from B
b. C can collect the entireP2,000,000 from B but the latter can recover from A P1,000,000.
c. A is liable only to C for P1,000,000 because he can interpose his defense of fraud.
d. B is liable to C for his share of P1,000,000.

7.

Which of the following is a consensual contract:

a. Contract of partnership with capital contribution of real property amounting to P100,000.
b. Oral donation of personal computer worth P15,000.
c. Stipulation of interest in a contract of loan.
d. Contract of agency.

8.

Which
a.
b.
c.
d.

9.

In the following cases, the debtor shall lose the benefit of the period choose the exception.
a.When after the contraction of the obligation the debtor becomes insolvent but he gives collateral security or
guaranty.
b.When the debtor fails to furnish the collateral securities which has promised.
c. When the collateral security is impaired whether through the debtors fault or by fortuitous events.
d.When the debtor attempts to abscond.

of these is not a conditional obligation?

D is to pay C P1,000,000 if he finishes his LL.B. at the V.P. College of law.
D will pay C P500,000 as soon as his financial means will permit him to do so.
D is to pay C P2,000,000 ten days after his 80 th birthday.
D will pay C P1,000,000 twenty days after he passes the C.P.A. exams for October 2008.

10. A, B, & C obligated themselves to deliver to X a specific and determinate car valued at P600,000. Due to the fault of
A, the car was not delivered to X causing the latter damages in the amount of P9,000.
a.By specific performance. X can compel B & C to deliver 1/3 each of the car and H to pay damages.
b.The action of X is converted into one for damages where he hold liable A, B & C for P203,000 each.
c. The action of X is converted into one for damages where he can hold B & C liable for P200,000 each and A for
P209,000.
d.The action being solidary and indivisible only A can be held liable by X for P609,000.

TAXATION
1.

Which of the following statement is not correct?

a. The government automatically possesses the power to collect taxes from its inhabitants.
b. The government can enforce contribution upon its citizen only when the Constitution grants it.
c.Taxation power exist inseparably with the State.
d. The State has the supreme power to command and enforce contribution from the people within its jurisdiction.

2.

One of the following is not among the basic justifications for taxation.
a. Taxation is based on necessity
b. Taxation is the lifeblood of the government.
c.Taxation is the bread and butter of the government.
d. Taxation is a voluntary contribution for benefit received.

3.

If income earned is taxable and subject to final tax, such income is needed to be reported in the annual income tax
return.
The excess of actual expenses over advances made shall constitute taxable income if such amount is not returned
to the employer.
a. first statement is correct
b. second statement is correct

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c.
d.

both statements are correct

both statements are incorrect

4.

Which of the following capital assets transactions is subject to final income tax?
a. Sale of movable property
b. Investment in shares of stock sold outside stock market
c. Investment in equity securities .sold inside stock market
d. Investment in 7- year bonds sold at a gain

5.

The power of legislative review in taxation is limited only to the interpretation and application of tax laws.
Taxes can be set off or compensated against obligations arising from contracts for as long as both obligations are
due and demandable.
a. first statement is correct
b. second statement is correct
c. both statements are correct
d. both statements are incorrect

6.

The law on prescription being a remedial measure should be interpreted liberally in order to protect the taxpayer.
Tax exemptions are not presumed.
a. first statement is correct
b. second statement is correct
c. both statements are correct
d. both statements are incorrect

7.

Only he BIR Commissioner is expressly authorized by the Tax Code to enter into compromise for both civil and
criminal liabilities subject to certain conditions.
There is no direct double taxation by taxing corporate income and corporate stockholders dividends from the same
corporation.
a. first statement is correct
b. second statement is correct
c. both statements are correct
d. both statements are incorrect

8.

On April 15, 2008 Madam Ratsa filed her income tax return for her 2007 income and paid the tax due thereon. In
year 2009, when Madam Ratsa hired a new CPA to prepare her income tax return, she was informed that she made
an overpayment in her income tax return filed in 2008. Convinced that she erroneously computed her tax in favor
of the government, Madam Ratsa engaged the services of a lawyer and filed a written claim for refund or tax
erroneously collected with the BIR Commissioner on December 15, 2009. On April 10, 2010 without receiving a
reply or decision on her claim for refund, Madam Ratsas lawyer filed in Court of Tax Appeals a petition for review
on her claim for refund erroneously collected. Did the Court of Tax Appeals acquire jurisdiction over the petition for
review over Madam Ratsas case?
1st answer: No, because the appeal is premature, there being no decision yet on said claim for refund. The Court
of Tax Appeals did not acquire jurisdiction over the appeal because its jurisdiction is to review by appeal decision of
BIR Commissioner.
2nd answer: Yes, because while the BIR Commissioner has not yet rendered a decision on said claim for refund,
preemptory period of two years within which to claim for refund of taxes erroneously collected may be filed is about
to expire on April 15, 2010 and the failure of the Commissioner to act on the claim for refund is tantamount to
denial of the taxpayers claim, hence, an appeal was made to the Court of Tax Appeals.
a.1st answer wrong, 2nd answer correct
b.1st answer correct, 2nd answer wrong
c. Both answer are correct
d.Both answer are wrong

9.

In which of the following instances may a taxpayer include his income as part of gross income subject to basic tax
at his option?

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a.When it involves a gain from sale of shares of stock held as capital assets, is not traded in the stock exchange
and the gain does not exceed P100,000.
b.When a real property held as capital asset is sold to the government or any of its political subdivision.
c. When it involves a gain from sale of shares of stock held as capital assets and is traded in the stock exchange
d.When the sale involves a real property held as capital asset.
10.

Basty Bank, Inc. is a domestic bank operating in the Polillo,Quezon. From the following data in a month:
Rentals from safety deposit boxes and real property acquired
Through foreclosure proceeding for bad loans
Net foreign exchange gains (difference between the value of foreign
currencies sold and purchased)
Net trading gains from trading of securities, commercial papers and other
financial instruments (difference between
the yield or selling price and the cost of obtaining the same)
Trust fees
Dividends from domestic corporations
Other service fees
Interest income from lending activities from instruments with remaining
terms of:
Five years and less
More than five years

P880,000
220,000

660,000
110,000
30,000
220,000
700,000
800,000

The percentage tax (gross receipts tax) for the month is:
a.
P0
c. P43,000
b. P189,300
d. P104,500

MANAGEMENT ADVISORY SERVICES

1.

What
A.
B.
C.
D.

is a major disadvantage of using economic value added (EVA) alone as a performance measure?
It fails to focus on creating shareholder value.
It promotes the acceptance of unprofitable projects.
It fails to reflect all of the ways that value may be created.
It discourages cost cutting.

2.

Associated Supply, Inc. is considering introducing a new product that will require a P250,000 investment of capital.
The necessary funds would be raised through a bank loan at an interest rate of 8%. The fixed operating costs
associated with the product would be P122,500 while the contribution margin percentage would be 42%. Assuming
a selling price of P15 per unit, determine the number of units (rounded to the nearest whole unit) Associated would
have to sell to generate earnings before interest and taxes (EBIT) of 32% of the amount of capital invested in the
new product.
A.
35,318 units.
C. 25,575 units.
B.
32,143 units.
D. 23,276 units

3.

Following are the operating results of the two segments of Parklin Corporation
Sales
P10,000
P15,000
P25,000
Variable cost of goods sold
4,000
8,500
12,500
Fixed cost of goods sold
1,500
2,500
4,000
Gross margin
4,500
4,000
8,500
Variable selling and administrative
2,000
3,000
5,000
Fixed selling and administrative
1,500
1,500
3,000
Operating income (loss)
P1,000
P (500)
P500
Fixed costs of goods sold are allocated to each segment based on the number of employees. Fixed selling and administrative expenses are allocated equally. If Segment B is eliminated, P1,500 of fixed costs of goods sold would
be eliminated. Assuming Segment B is closed, the effect on operating income would be

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A.
B.

An increase of P500.
An increase of P2,000.

C. A decrease of P2,000.
D. A decrease of P2,500.

4.

The balanced scorecard generally uses performance measures with four different perspectives. Which of the
following performance measures would be part of those used for the internal business processes perspective?
A.
Cycle time.
B.
Employee satisfaction.
C.
Hours of training per employee.
D.
Customer retention.

5.

Antlers, Inc. produces a single product that sells for P150 per unit. The product is processed through the Cutting
and Finishing departments. Additional data for these departments are follows:
Cutting
Finishing
Annual capacity (36,000 direct labor hours available in each
department)
180,000 units
135,000 units
Current production rate (annualized)
108,000 units
108,000 units
Fixed manufacturing overhead
P1,296,000
P1,944,000
Fixed selling and administrative expense
P864,000
P1,296,000
Direct materials cost per unit.
P45
P15
The current production rate is the budgeted rate for the entire year. Direct labor employees earn P20 per hour and
the company has a no layoff policy in effect. What is the amount of the throughput contribution per unit as
computed using the theory of constraints?
A. p90.00
C. P46.67
B. P76.67
D. P26.67

6.

Management of Russell Corporation is considering the following two potential capital structures for a newly acquired
business.
Alternative I
Long-term debt, 6% interest
P3,000,000
Common equity
P3,000,000
Cost of common equity, 10%
Marginal tax rate, 15%
Alternative 2
Long-term debt, 7% interest
P5,000,000
Common equity
P1,000,000
Cost of common equity, 12%
Marginal tax rate, 15%
Which of the following statements is not true if management decides to accept Alternative 1?
A.
Alternative 1 is the more conservative capital structure.
B.
Alternative 1 provides the greatest amount of financial leverage.
C.
Net income will be less variable under Alternative 1.
D.
Total interest expense

7.

Para Co. is reviewing the following data relating to an energy saving investment proposal:
Cost
P50,000
Residual value at the end of 5 years
10,000
Present value of an annuity of 1 at 12% for 5 years
3.60
Present value of 1 due in 5 years at 12%
0.57
What would be the annual savings needed to make the investment realize a 12% yield?
A.
P 8,189
C. P12,306
B.
P11,111
D. P13,889

8.

Ethoy, Inc. has seasonal demand for its products and management is considering whether level production or sea-al
production should be implemented. The firms short- term interest cost is 8%, and management has developed the
following information to make the decision:
Alternative 1
Alternative 2
Level production
Seasonal production

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

Average inventory
Production costs

P2,000,000
P6,000,000

P1,500,000
P6,050,000

At what rate of short-term interest rate would the two alternatives have the same cost?
A.
6%
C. 10%
B. 9%
D. 12%
9.

Roy Macho Company is budgeting sales of 53,000 units of product Nous for October 2008. The manufacture of one
unit of Nous requires four kilos of chemical Loire. During October 2008, Roy Macho plans to reduce the inventory
of Loire by 50,000 kilos and increase the finished goods inventory of Nous by 6,000 units. There is no Nous work in
process inventory. How many kilos of Loire is Roy Macho planning to purchase in October 2008?
A.
138,000
C. 186,000
B.
162,000
D. 238,000

10.

Anna Bonita Wheels purchases bicycle components in the month prior to assembling them into bicycles. Assembly
is scheduled one month prior to budgeted sales. Anna pays 75% of component costs in the month of purchase and
25% of the costs in the following month. Component cost included in budgeted cost of sales are
April
May
June
July
August
P5,000
P6,000
P7,000
P8,000
P8,000
What is Annas budgeted cash payment for components in May?
A.
P5,750
C. P7,750
B.
P6,750
D. P8,000

AUDITING THEORY
1.

The following statements relate to CPA examination ratings. Which of the following is incorrect?
a. To pass the examination, candidates should obtain a general weighted average of 75% and above, with no
rating in any subject less than 65%.
b. Candidates who obtain a rating of 75% and above in at least four subjects shall receive a conditional credit for
the subjects passed.
c. Candidates who failed in four complete examinations shall no longer be allowed to take the examinations the
fifth time.
d. Conditioned candidates shall take an examination in the remaining subjects within two years from the
preceding examination.

2.

Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register with the
BOA and the PRC. If the application for registration of AB and Co., CPAs was approved on August 30, 2006, it shall
file for renewal on or before
a. September 30, 2008
c. December 31, 2008
b. September 30, 2009
d. August 30, 2009

3.

Below are the names of three CPA firms and pertinent facts relative to each firm. Unless otherwise indicated, the
individuals named are CPAs and partners, and there are no other partners. Which firm name and related facts
indicates a violation of the IRR of RA 9298?
a.Joyce, Ara and Angela, CPAs (Joyce died about 10 years ago, Ara and Angela are continuing the firm)
b.Lupin and Fujico, CPAs ( the name of Goymon a third active partner is omitted in the firm name)
c. Hugo and Pugo, CPAs (Hugo died 25 months ago, Pugo is continuing the firm as a sole proprietor)
d.Bubu and Bibi, CPAs (Bibi died 3 years ago, Bobot was admitted into the partnership 2 months after Bibis death.)

4.

If a firm, or a network firm, has a direct financial interest in an audit client of the firm, the self-interest threat created
would be so significant no safeguard could reduce the threat to an acceptable level. The action appropriate to permit
the firm to perform the engagement would be to
a. Dispose of the financial interest.

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b.
c.
d.

Dispose of a sufficient amount of it so that the remaining interest is no longer material.

Either a or b.
Neither a nor b.

5.

The degree to which a fair value measurement is susceptible to misstatement is a(an)

a. Audit risk
b. Inherent risk
c. Control risk d. Detection risk

6.

An auditor selected items for test counts while observing a clients physical inventory. The auditor then traced the
test counts to the clients inventory listing. This procedure most likely obtained evidence concerning
a. Existence.
c. Rights.
b. Completeness.
d. Valuation.

7.

Which statement is incorrect regarding the nature of tests of controls?

a. As the planned level of assurance increases, the auditor seeks more reliable audit evidence.
b. Those controls subject to testing by performing inquiry combined with inspection or reperformance ordinarily
provide more assurance than those controls for which the audit evidence consists solely of inquiry and
observation.
c. The absence of misstatements detected by a substantive procedure provides audit evidence that controls related
to the assertion being tested are effective.
d. A material misstatement detected by the auditors procedures that was not identified by the entity ordinarily is
indicative of the existence of a material weakness in internal control.

8.

The assessment of the risks of material misstatement at the financial statement level is affected by the auditors
understanding of the control environment. Weaknesses in the control environment ordinarily will lead the auditor to
a. Have more confidence in internal control and the reliability of audit evidence generated internally within the entity.
b. Conduct some audit procedures at an interim date rather than at period end.
c. Modify the nature of audit procedures to obtain more persuasive audit evidence.
d. Decrease the number of locations to be included in the audit scope.

9.

When the auditor determines that detection risk regarding a financial statement assertion for a material account
balance or class of transactions cannot be reduced to an acceptable level, the auditor should express
a. Qualified or adverse opinion
c. Unqualified opinion with explanatory paragraph
b. Qualified or disclaimer of opinion
d. Unqualified opinion.

10. Which of the following is least likely a procedure that would be performed by the auditor near the auditors report
date?
a. Reading the minutes of the meetings of shareholders, the board of directors and audit executive committees held
throughout the audit year.
b. Reading the entitys latest available interim financial statements.
c. Inquiring of the clients legal counsel concerning litigations and claims.
d. Reviewing the procedures that management has established to ensure that subsequent events are identified.

PRACTICAL ACCOUNTING 1
1.

On November 15, 2008, Socrates entered in to a commitment to purchase 200,000 units of raw material X for
P8,000,000 on March 15, 2009. Socrates entered into this purchase commitment to protect itself against the
volatility in the price of raw material X. By December 31, 2008, the purchase price of material X had fallen to P35
per unit. However, by March 15, 2009, when Socrates took delivery of the 200,000 units, the price of the material
had risen to P42 per unit. How much will be recognized as gain on purchase commitment on March 15, 2009?
a. P1,400,000
c. P400,000
b. P1,000,000
d. P
0

2.

On September 30, 2008, the company completed the construction of a new warehouse.
achieved using the companys own resources as follows:

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Purchased materials
Direct labor
Supervision
Design and planning costs

P150,000
800,000
65,000
20,000

Included in the above figures are P10,000 for materials and P25,000 for labor costs that were effectively lost due to
the foundations being too close to a neighboring property. All the above costs are included in cost of sales. The
building was brought into immediate use upon completion and has an estimated useful life of 20 years (straight-line
depreciation). The companys policy for all depreciation is that it is charged to cost of sales and a full years charge
is made in the year of acquisition or completion and none in the year of disposal.

The carrying amount of the new warehouse as of December 31, 2008 is

a. P1,000,000
c. P950,000
b. P 869,250
d. P987,500
3.

On January 1, 2007, Citimart Inc. was granted 5,000 acres of land in a village, located near the slums outside the
city limits, by a local government authority. The condition attached to this grant was that the company should
clean up this land and lay roads by employing laborers from the village in which the land is located. The
government has fixed the minimum wage payable to the workers. The entire operation will take three years and is
initially estimated to cost P160 million. The fair value of this land on the date of grant was P240 million and is
expected to increase by at least 20% annually because of the improvements to be done by the company. In
relation to the attached condition, the company incurred costs of P80 million in 2007 and P70 million in 2008. On
December 31, 2008, the company estimated that it will incur additional cost of P30 million in 2009.
How much should be recognized as income from government grant for the year ended December 31, 2008?
a. P120,000,000
c. P80,000,000
b. P105,000,000
d. P70,000,000

4.

Worn Company had purchased equipment for P10,000,000, on January 1, 2006. The equipment had a 5-year life
and a salvage value of 10%. Worn Company depreciated the equipment using the straight line method. On
December 31, 2008, Worn had doubts on the recoverability of the carrying amount of this equipment. On
December 31, 2008, the discounted expected net future cash inflows related to the continued use and eventual
disposal of the equipment totaled P4,300,000. The equipments fair value less costs to sell on December 31, 2008
is P4,500,000. After any loss on impairment has been recognized, what is the carrying amount of the equipment?
a. P4,000,000
c. P4,500,000
b. P4,300,000
d. P4,600,000

5.

The draft balance sheet of JJ Rapids Corporation as of December 31, 2008 reported the net property, plant and
equipment at P4,200,000. Details of the amount follow:
Land at cost
Building at cost
Less accumulated
depreciation at 12/31/07

P1,000,000
P4,000,000
( 800,000)

3,200,000
P4,200,000

At the beginning of the current year, the company had an open market basis valuation of its properties. Land was
valued at P1.2 million and the building at P4.8 million. The directors wish these values to be incorporated into the
financial statements. The building had an estimated remaining life of 20 years at the date of the valuation
(straight-line depreciation is used). The company makes a transfer to retained earnings in respect of the excess
depreciation on revalued assets.
The revaluation surplus as of December 31, 2008 is
a. P1,720,000
b. P1,710,000
6.

c. P1,800,000
d. P 960,000

Jenus owns a company called Klassic Kars. Extracts from Jenus' consolidated balance sheet relating to Klassic Kars
are:

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Goodwill
Franchise costs
Restored vehicles (at cost)
Plant
Other net assets

P 80,000,000
50,000,000
90,000,000
100,000,000
50,000,000
P370,000,000

The restored vehicles have an estimated realizable value of P115 million. The franchise agreement contains a 'sell
back clause, which allows Klassic Kars to relinquish the franchise and gain a repayment of P30 million from the
franchisor. An impairment review at December 31, 2008 has estimated that the value of Klassic Kars as a going
concern is only P240 million.
How much is the carrying amount of Plant after impairment loss is recognized?
a. P66,666,667
c. P80,000,000
b. P75,000,000
d. P82,800,000
7.

Joy Corp. is engaged in a research and development project to produce a new product. In the year ended December
31, 2007, the company spent P1,200,000 on research and concluded that there were sufficient grounds to carry the
project on to its development stage and a further P750,000 had been spent on development. At that date
management had decided that they were not sufficiently confident in the ultimate profitability of the project and
wrote off all the expenditure to date to the income statement. In 2008 further direct development costs have been
incurred of P800,000 and the development work is now almost complete with only an estimated P100,000 of costs
to be incurred in the future. Production is expected to commence within the next few months. Unfortunately the
total trading profit from sales of the new product is not expected to be as good as market research data originally
forecasted and is estimated at only P1,500,000. Assuming the other criteria given in PAS 38 are met, how much
should be capitalized as of December 31, 2008?
a. P1,650,000
c. P900,000
b. P1,550,000
d. P800,000

8.

Sayong Company bought 20% of Yobo Corporations ordinary shares on January 1, 2008 for P11,400,000. Carrying
amount of Yobos net assets at purchase date totaled P50,000,000. Fair value and carrying amounts were the
same for all items except for plant and inventory, for which fair values exceed their carrying amounts by
P10,000,000 and P2,000,000 respectively. The plant has a 5-year life. All inventory was sold during 2008. During
2007, Yobo reported net income of P30,000,000 and paid a P10,000,000 cash dividend. What amount should
Sayong report as net income related to this investment in 2008?
a. P5,200,000
c. P5,400,000
b. P6,200,000
d. P4,200,000

9.

On January 2, 2008, Arjam Co. established a noncontributory defined benefit plan covering all employees and
contributed P450,000 to the plan. At December 31, 2008, Arjam determined that the 2008 service and interest
costs on the plan were P620,000. The expected and the actual rate of return on plan assets for 2008 was 10%.
There are no other components of Arjam's pension expense. What amount should Arjam report in its December
31, 2008 balance sheet as accrued pension expense?
a. P575,000
c. P125,000
b. P170,000
d. P 80,000

10. The following facts relate to Mustafah Corporation for the year 2008:

Accounting profit for the year, P500,000.

Cumulative temporary difference at December 31, giving rise to future taxable amounts, P230,000.

Cumulative temporary difference at December 31, giving rise to the future deductible amounts, P95,000.

Deferred tax liability, January 1, P48,300.

Deferred tax asset, January 1, P15,750.

Tax rate for all years, 35%.

No permanent differences exist. The company is expected to operate profitably in the future. What is the current
tax expense?
a. P160,300
c. P175,000

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

b.

P127,750

d.

P189,700

AUDITING PROBLEMS

1.

During the course of your examination of the financial statements of H Co., a new client, for the year ended
December 31, 2008, you discover the following:

Inventory at January 1, 2008, had been overstated by P3,000.

Inventory at December 31, 2008, was understated by P5,000.

An insurance policy covering three years had been purchased on January 2, 2007, for P1,500. The entire amount
was charged as an expense in 2007.
During 2008 the company received a P1,000 cash advance from a customer for merchandise to be manufactured and
shipped during 2009. The P1,000 had been credited to sales revenues. The company's gross profit on sales is 50%.
Net income reported on the 2008 income statement (before reflecting any adjustments for the above items) is
P20,000.
The proper net income for 2008 is
a. P26,500
c. P23,500
b. P16,500
d. P20,500

2.

Upon inspection of the records of Everybody's Company, the following facts were discovered for the year ended
December 31, 2008:

A fire premium of P4,000 was paid and charged as insurance expense in 2008. The fire insurance policy covers
one year from April 1, 2008.

Inventory on January 1, 2008 was understated by P8,000.

Inventory on December 31, 2008 was understated by P12,000.

Business taxes of P5,500 for the fourth quarter of 2008 were paid on January 20, 2009 and charged as expense
in 2009.

On December 5, 2008, a cash advance of P10,000 by a customer was received for goods to be delivered in
January 2009. The P10,000 was credited to sales. The company's gross profit on sales is 40%.

The net income of Everybody's Company on the income statement for the year ended December 31, 2008, before
any adjustments for the above information, is P155,000.
What is the adjusted net income of Everybodys Company for the year ended for the December 31, 2008?
a. P136,500
c. P144,500
b. P142,500
d. P150,500

3.

The following totals are taken from the December 31, 2008, balance sheet of Streamer Company:
Current assets
Long-term assets
Current liabilities
Long-term liabilities

P350,000
800,000
240,000
270,000

Additional information:
(a) Cash of P38,000 has been placed in a fund for the retirement of long-term debt. The cash
and long-term debt have been offset and are not reflected in the financial statements.
(b) Long-term assets include P50,000 in treasury shares.
(c) Cash of P14,000 has been set aside to pay taxes due. The cash and taxes payable have
been offset and do not appear in the financial statements.
(d) Advances on salespersons' commissions in the amount of P21,000 have been made. Also,
sales commissions payable total P24,000. The net liability of P3,000 is included in Current
Liabilities.
After making any necessary changes, compute for the totals of Streamer's current assets:

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

a.
b.
4.

P385,000
P423,000

c. P350,000
d. P364,000

The inventory on hand at December 31, 2008 for Fair Company valued at a cost of P947,800. The following items
were not included in this inventory amount:
a.Purchased goods, in transit, shipped FOB destination invoice price P32,000 which included freight charges of
P1,600.
b.Goods held on consignment by Fair Company at a sales price of P28,000, including sales commission of 20% of
the sales price.
c. Goods sold to Garcia Company, under terms FOB destination, invoiced for P18,500 which includes P1,000 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, P3,000.
e.Goods out on consignment to Manil Company, sales price P36,400, shipping cost of P2,000.
Assuming that the company's selling price is 140% of inventory cost, the adjusted cost of Fair Company's inventory
at December 31, 2008 should be
a. P1,039,300
c. P1,055,700
b. P1,039,500
d. P1,037,300

5.

During your review of the records of Yoko Corporation for the year 2008, you noted that Yoko sold a machine with a
carrying amount of P640,000 (cost is P1,600,000) on June 30, 2008. Yoko received an P800,000 non-interest
bearing note due in 3 years. There is no established market value for the machine. The prevailing interest rate for a
note of this type is 12%. Yoko recorded the transaction by debiting Note Receivable for P800,000 and crediting
Machinery for P640,000 and Gain on sale of Machine for the difference. Because of this, Yokos profit for the year
ended December, 2008 had been overstated by (Round-off present value factors to four decimal places)
a. P196,393
c. P125,834
b. P162,227
d. P 55,274

6.

Atkins bought five identical plots of development land for P2 million in 2006. On 2 January 2008 Atkins sold three of
the plots of land to an investment company, Landbank, for a total of P2.4 million. This price was based on 75% of
the fair market value of P3.2 million as determined by an independent surrveyor at the date of sale. The terms of the
sale contained two clauses:
Atkins can re-purchase the plots of land for the full fair value of P3.2 million (the value determined of the date of
sale) any time until 31 December 2010; and
On 1 January 2011, Landbank has the option to require Atkins to re-purchase the properties for P3.2 million. You
may assume that Landbank seeks a return on its investments of 10% per annum.
If Atkins recorded the legal form of the transaction instead of its substance, profit for 2008 will be overstated by
a. P1,440,000
c. P640,000
b. P1,200,000
d. P400,000

7.

On May 6, 2008 a flash flood caused damage to the merchandise stored in the warehouse of Cabanatuan Co. You
were asked to submit an estimate of the merchandise destroyed in the warehouse. The following data were
established:
a.Net sales for 2007 were P800,000, matched against cost of P560,000.
b.Merchandise inventory, Jan. 1, 2008 was P200,000, 90% of which was in the warehouse and 10% in downtown
showrooms.
c. For Jan. 1, 2008 to date of flood, you ascertained invoice value of purchases (all stored in the warehouse),
P100,000; freight inward, P4,000; purchases returned, P6,000.
d.Cost of merchandise transferred from the warehouse to show-rooms was P8,000, and net sales from January 1 to
May 6, 2008 (all warehouse stock) were P320,000.
Assuming gross profit rate in 2008 to be the same as in the previous year, the estimated merchandise destroyed by
the flood was
a. P80,000
c. P50,000
b. P66,000
d. P46,000

8.

John Corp. has the following data relating to accounts receivable for the year ended December 31, 2008:
Accounts receivable, January 1, 2008

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

Allowance for doubtful accounts, January 1, 2008
Sales during the year, all on account, terms 2/10, 1/15, n/60
Cash received from customers during the year
Accounts written off during the year

19,200
2,400,000
2,560,000
17,600

An analysis of cash received from customers during the year revealed that P1,411,200 was received from
customers availing the 10-day discount period, P792,000 from customers availing the 15-day discount period,
P4,800 represented recovery of accounts written-off, and the balance was received from customers paying beyond
the discount period.
The allowance for doubtful accounts is adjusted so that it represents certain percentage of the outstanding
accounts receivable at year end. The required percentage at December 31, 2008 is 125% of the rate used on
December 31, 2007.
The doubtful accounts expense for the year ended December 31, 2008 is
a. P6,880
c. P8,720
b. P7,120
d. P8,960
9.

On December 31, 2008, Lakeside Co. shows the following account for machinery it had assembled for its own use
during 2008:
Account: MACHINERY (Job Order #14344)
Item
Cost of dismantling old machine
Cash proceeds from sale of old machine
Raw materials used in construction of new machine
Labor on construction of new machine
Cost of installation
Materials spoiled in machine trial runs
Profit on construction
Purchase of machine tools

Debit
P14,480

Credit
P12,000

76,000
49,000
11,200
2,400
24,000
13,000

An analysis of the details in the account disclosed the following:

a. The old machine, which was removed before the installation of the new one, had been fully depreciated.
b. Cash discounts received on the payments for materials used in construction totaled P3,000, and these were
reported in the purchase discounts account.
c. The factory overhead account shows a balance of P292,000 for the year ended December 31,2008; this balance
exceeds normal overhead on regular plant activities by approximately P16,900 and is attributable to machine
construction.
d. A profit was recognized on construction for the difference between costs incurred and the price at which the
machine could have been purchased.
The adjusted cost of the machinery is
a. P165,500
b. P133,200

c. P150,100
d. P152,500

10. The Evita Company uses cash-basis accounting for their records. During 2008, Evita collected P500,000 from its
customers, made payments of P200,000 to its suppliers for inventory, and paid P140,000 for operating costs. Evita
wants to prepare accrual-basis statements. In gathering information for the accrual-basis financial statements, Evita
discovered the following:
a.
Customers owed Evita P50,000 at the beginning of 2008 and P35,000 at the end of 2008.
b.
Evita owed suppliers P20,000 at the beginning of 2008 and P27,000 at the end of 2008.
c.
Evita's beginning inventory was P42,000, and its ending inventory was P44,000.
d.
Evita had prepaid expenses of P5,000 at the beginning of 2008 and P7,400 at the end of 2008.
e.
Evita had accrued expenses of P12,000 at the beginning of 2008 and P19,000 at the end of 2008.
f.
Depreciation for 2008 was P51,000.
Determine the accrual basis net income of Evita Company for the year ended December 31, 2008.

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

a.
b.

P84,400
P79,600

c. P91,400
d. P98,400

PRACTICAL ACCOUNTING 2
1.

The condensed balance sheet of IVY Corporation as of December 31, 2007 is shown below:
Book Values
P200,000
300,000
P500,000

Current assets
Plant assets
Total assets
Liabilities
Capital stock, P10 par
Additional paid-in capital
Retained earnings
Total equities

Fair Values
P225,000
400,000

P150,000
50,000
100,000
200,000
P500,000

On January 1, 2008, Vine Company issues 10,000 shares of its P10 par value stock with a market value of P50 per
share for the net assets of IVY Corporation.
How much is the increase in the stockholders' equity of Vine Company due to the business combination?
A. P 100,000
C. P 350,000
B. P 150,000
D. P 500,000
2.

The following amounts were taken from the statement of affairs for Bagsak Company
Unsecured liabilities without priority
Stockholders' equity
Loss on realization of assets
Estimated administrative expenses that have
entered
in
the accounting records
Unsecured liabilities with priority

P90,000
36,000
45,000
not

been

4,500
10,000

The estimated payment for the unsecured liabilities without priority will be
A. P76,500
C. P81,000
B. P77,850
D. P90,000
3.

Rose Company which began operations on January 2, 2007, appropriately uses the installment sales method of
accounting. The following information is available for 2007: Installment accounts receivable, December 31,
P800,000; Deferred gross profit, December 31, before recognition of realized gross profit for 2007, P560,000;
gross profit rate on sales, 40%
For the year ended December 31, 2007, cash collections and realized gross profit on sales should be:
A. P400,000;P320,000
C. P600,000;P320,000
B. P400,000;P240,000
D. P600,000;P240,000

4.

Buildquick Construction Company has entered into a fixed price contract to construct an apartment building for
P13,000,000.
The details of the costs incurred to date in the first year are
Site labor cost

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

Cost of construction materials
Depreciation of plant and
equipment being used in project
Marketing and selling costs to get
the exposure needed
Total
Estimated additional cost to
complete the building

3,000,000
500,000
200.000
P4,700,000
P 5,500,000

Calculate the amount of profit to be recognized by Buildquick for the first year of construction activities.
A. P 829,412
C. P1,350,000
B. P 900,000
D. P1,800,000

5.

The home office in Alabang shipped merchandise costing P55,500 to Davao branch, prepaid, the freight
amounting to P4,200. The home office transfers merchandise to the branch at a 20% mark-up above
cost. Davao branch was subsequently instructed to transfer the merchandise to Cebu branch wherein
the latter paid for P2,800 freight. If the shipment was made directly from Alabang to Cebu, the freight
cost would have been P6,200.
Which of the following is true as a result of the interbranch transfer of merchandise?
A. The home office will debit Branch Current - Cebu, P73,600
B. Cebu branch will debit Home Office Current - P70,000
C. Davao branch credit Freight-in, P6,200
D. The home office will credit Branch Current - Davao, P70,800

6.

Job No. 41 (consisting of 5,000 units) was started in September, 2008 and it is special in nature because of its
strict specifications. Factory overhead is charged at P 0.85 per unit and includes a P.05 provision for defective work.
The prime costs incurred in September are: Direct materials, P 9,000 and Direct labor, P 4,800. Upon inspection, 80
units were found with imperfections and required the following reprocessing costs, Direct materials, P 2,000 and
direct labor, P 1,000.
The unit cost of Job No. 41, upon completion, is:
A. P 4.22
C. P 3.98
B. P4.17
D. P 3.69

7.

Patter Corporation issues 500,000 shares of its own P10 par common stock for the net assets of Simpson
Corporation in a merger consummated on July 1, 2007. On this date, Patter stock is quoted at P20 per share.
Summary balance sheet data for the two companies at July 1, 2007, just before combination, are as follows:
Patter
Simpson
Current assets
P18,000,000
P1,500,000
Plant assets
22,000,000
6,500,000
Total assets
40,000,000
8,000,000
Liabilities
12,000,000
2,000,000
Common stock- P10 par
20,000,000
3,000,000
Additional paid-in capital
3,000,000
1,000,000
Retained earnings
5.000,000
2.000.000
Total equities
P40,000,000
P8,000,000
Calculate the retained earnings Patter Corporation immediately after the combination:
A. P5,000,000
C. P7,000,000
B. P6,000,000
D. P8,000,000

8.

An entity purchases plant from a foreign supplier for 3 million foreign currency units on January 31, 2007, when the
exchange rate was 2fc = PI. At the entity's year-end of March 31, 2007, the amount has not been paid. The closing
exchange rate for the mentioned foreign currency was 1.5fc = PI. The entity's functional currency is the peso.

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

Which of the following statements is correct?

A. Cost of plant, P2 million, exchange loss P0.5 million, trade payable, PI.5 million.
B. Cost of plant, PI.5 million, exchange loss P0.6 million, trade payable, P2 million.
C. Cost of plant, PI.5 million, exchange loss P0.5 million, trade payable, P2 million.
D. Cost of plant, P2 million, exchange loss P0.5 million, trade payable P2 million.
9.

On September 24, 2007 Bureau of Internal Revenue (BIR) collected taxes from individual taxpayers in the amount
of P875,000 The BIR has no authority to use these collections in their operation and therefore deposited it to the
Bureau of Treasury. What is the journal entry to record the collections in the National Government Books?
A. Cash-National Treasury -MDS
Subsidy Income from NG
B. Cash-Collecting Officer
Income taxes-Individuals
C. Cash-Collecting Officer
Contributions Revenue
D. Cash-National Treasury - MDS
Income taxes-Individuals

10.

875,000
875,000
875,000
875,000

875,000
875,000
875,000
875,000

Darlin Hospital, a private not-for-profit hospital, had the following cash receipts for the year ended
December 31, 2007:
Patient service revenue
Gift shop revenue
Interest revenue restricted by donor
stipulation for acquisition of equipment

P300,000
25,000
50,000

As a result of these cash receipts, the hospital's statement of cash flows for the year ended December
31, 2007, would report an increase in operating activities of
a.
P325,000
b.
P375,000
c.
P350,000
d.
P300,000

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