MAY 2009 CPA BOARD EXAM

Management Advisory Services

PART I. Basic Consideration in MAS and Consulting Practice

1. Which of the following statement is True?

a. Adequate training and experience in both the analytical approach and process in the particular
undertaking are requisites for the CPA to be involved in a management service engagement.
b. A CPA with MBA and Ph D Degrees is automatically qualified to render management services.
c. Competence as a standard in the rendition of management services by a CPA may be equated to
having excellent scholarly preparation to include the usual baccalaureate degree, an MBA and
other post graduate studies.
d. A CPA by virtue of having the necessary academic preparation and by hurdling the licensure
examinations required to have a CPA license can readily render management services to the
public.

2. Which of the following statement is False?

a. CPAs provide management services to go around the ethical constraints as mandated by the
accountancy act.
b. Businesses hire management consultants to help define specific problems and develop solutions.
c. Included in the practice of consulting is the provision of confidential service in which the identity
of the client is concealed.
d. CPAs performing management services may be considered to be in the practice of management
consulting.

3. Mr. Rey Carlos, a CPA firm’s partner in-charge of quality assurance and review is arguing with Mr.
Rueben Fortuna, the consulting partner regarding the question on independence as Mr. Fortuna is
presently rendering consulting services to T. Ang & Nga Company, an audit client of the firm. Related to
this issue of independence, all of the following statements are not valid except:
a. Independence is not sacrifice for as long as the auditor/consultant is correct in his decisions for
the client.
b. A CPA who renders both audit and consulting services to a client, by virtue of his
competence/expertise and extensive knowledge of the client’s business is in the best position to
render decisions for the client and should do so.
c. The client is the ultimate decision maker and the auditor and/or consultant should not make
decisions for the client.
d. It is up to professional judgment and discretion of the auditor/consultant to render decision for
the client for as long as his professional fees are commensurate to the benefits that the client will
derive from the engagement.

4. A Certified Public Accountant’s scope of management services is broad and covers all of the following
except:
a. Change management engagement
b. Computerization engagements
c. Audit engagements
d. Re-engineering jobs

5. Which of the following statements is not acceptable?

a. A CPA represents 3 major players in the industry in rationalizing the industry’s incentives before
the government public hearings.
b. A CPA shares with a new and substantial client information regarding another client belonging to
the same industry.
c. A CPA provides consulting services to an existing audit client.
d. A CPA offers and provides consulting services to 2 major competing clients.

6. The following characterize management advisory services except

a. Involve decision for the future
b. Broader in scope and varied in nature
c. Utilize more junior staff than senior member of the firm
d. Relate to specific problems expert help is required

7. These statements relate to MAS practice standards:

1. A practitioner is to notify the client of any reservation he has regarding anticipated benefits.
 2. Throughout the engagement, there ought to be a systematic critical review of accomplishments
and work should be done within the framework of the code of ethics and other professional
standards.
3. During the engagement, should there be significant changes between cost and anticipated
benefits, the client should be informed.
4. Before the engagements, the practitioner must make arrangements with, and inform the client
on significant matters related to the engagement, in writing.

Of these statements, which pertains to the practice standard on client benefit?

a. Statements 1 and 3 only
b. All statements
c. Statement 1 only
d. Statements 1, 3 and 4 only

8. Which of the following statements is true?

a. Adequate training and experience in both the analytical approach and process in the particular
undertaking are requisites for the CPA to be involved in a management service engagement.
b. A CPA with MBA Ph D degrees is automatically qualified to render management services.
c. Competence as a standard in the rendition of management services by a CPA may be equated to
having excellent scholarly preparation to include the usual baccalaureate degree, and MBA and
other post graduate studies.
d. A Certified Public Accountant by virtue of having the necessary academic preparation and by
hurdling the licensure examinations required to have a CPA license can readily render
management services to the public.

9. Which of the following will not impair the independence of a CPA in the rendition of Management
Services?
a. The CPA performs decision-making services for his client.
b. The CPA perform services wherein he is in effect, acting as an employee of the client.
c. The CPA loses his objectivity and acts in a manner as if he is advocating fir the interest of his
client.
d. The CPA does not extend his services beyond the presentation of recommendation or giving of
advice.

PART II. Accounting Information System

10. An activity that is not considered part of the systems design phase is
a. File record layout
b. Document flowcharting
c. Specification of format and content of report
d. Systems survey

11. The main components of the Central Processing Unit (CPU) of a computer include only
a. Control, arithmetic and logic, and memory
b. Input, processing and output
c. Software, register and primary memory
d. Memory, processing and register

12. How is an Accounting Information System (AIS) distinguished from a management Information System
(MIS)?
a. An AIS maybe either manual or computer-based and MIS is computer-based.
b. An AIS is a subsystem within an MIS.
c. An AIS is controlled oriented and MIS is used exclusively for planning.
d. An AIS deals with financial information and MIS handles all other information.

13. Feedback, feed forward and preventive are important types of control systems and procedures for
accounting information systems. Which of the following is in the correct order of feedback, feed forward
and preventive control systems?
a. Inventory control, capital budgeting and cash budgeting.
b. Cost accounting variances, separation of duties and cash planning.
c. Cash budgeting, capital budgeting and hiring qualified employees.
d. Cost accounting variances, cash budgeting and organizational independence.
14. Bench Corp. operates in several regions, with each region performing its data processing in a region
data center. The corporate Management Information System staff has developed a database management
system to handle customer service and billing. The Director of MIS recommended that the new system be
implemented in the Region 4 to ascertain if the system operates in a satisfactory manner. This type of
conversion is called a
a. Crash conversion
b. Parallel conversion
c. Pilot conversion
d. Direct conversion

15. A floppy disk (e.g., VERBATIM, MAXELL).

a. Diskette
b. Cassette tape
c. Disk
d. Hard disk

16. Important types of control systems and procedures for accounting information systems are feedback,
feed forward and preventive. Which one of the following is in the correct order of feedback, feed forward
and preventive control systems?
a. Cost accounting variances, separation of duties and cash planning.
b. Cost accounting variances, cash budgeting and organizational independence.
c. Cash budgeting, cost accounting variances and separation of duties.
d. Inventory control, capital budgeting and cash budgeting.

17. Which one of the following represents a lack of internal control in a computer-based information
systems?
a. The design and implementation is performed in accordance with management’s specific
authorization.
b. Any and all changes in application programs have been authorization and approval of
management.
c. Provisions exist to ensure the accuracy and integrity of computer processing of all files and
reports.
d. Both computer operators and programmers have unlimited access to the programs and data files.

18. An Executive Information System (EIS) focuses on long-range objectives and gives immediate
information about an organization’s critical success factors. It can be used on computers of all sizes. It is
commonly used by all executives at the highest levels within the organization. All of the following
statements apply to EIS except:
a. It is likely to be one of the most widely used and the largest of the information subsystems in a
business organization.
b. It provides top executives with immediate and easy access to information in ahighly interactive
format.
c. It provides information in a highly aggregated form.
d. It helps executives monitor business conditions in general and assist in strategic planning to
control and operate the entity.

19. The concept of timeliness of data availability is most relevant to

a. Computerized system
b. Packaged software
c. On-line systems
d. Microsystems

20. To control purchasing and accounts payable, an information system must include certain source
documents. For a manufacturing concern like fruit processors, Inc., these documents should include
a. Purchase requisitions, purchase orders, receiving reports and suppliers invoices.
b. Purchase orders, receiving reports and inventory reports of goods needed.
c. Purchase requisitions, purchase orders, inventory reports of goods needed and supplier’s
invoices.
d. Purchase orders, receiving reports and supplier’s invoices.

III. MANAGEMENT ACCOUNTING CONCEPTS AND RESPONSIBILITY ACCOUNTING

21. Controllership has attained special recognition in corporate management as business expand in
complexity and reach and as the controller exerts influence for to take organization’s goals. Controllership
and treasurership constitute corporate finance. These are among corporate finance’s traditional functions.
1. Tax management
2. Finance reporting and interpretation
3. Credit management
4. Sourcing and investing funds
5. Reporting to government regulatory agencies
6. Risk management
7. Economic appraisal
8. Planning for control
Which of the following are the functions of the controller?
a. All eight items
b. Items 1, 2, 5, 7 and 8 only
c. Items 1, 2, 3, 4, 5, 7 and 8 only
d. Items 2, 3, 5, 7 and 8 only

22. To distinguish between management accounting and financial accounting, the following statements
are correct except:
a. Management accounting in view of its various integrated recipients should have a separate data
recording and retrieval system from financial accounting.
b. Financial accounting is bound by Generally Accepted Accounting Principles (GAAP), and
management accounting need not be in conformity with GAAP.
c. Financial accounting can be regarded as the process while management accounting can be
regarded as the product of that process.
d. Management accounting output must be released on time so as not to erode its usefulness;
Financial accounting output can still be useful even when delayed.
23. The activities in a management system’s control can be grouped into four
1. Measurement of actual performance
2. Deciding and implementing corrective actions
3. Determining standard of performance
4. Comparing actual performance versus standards and analyzing results.
The above steps must done in this sequence
a. 4, 3, 2, 1
b. 3, 1, 4, 2
c. 1, 3, 4, 2
d. 3, 4, 1, 2

IV. FINANCIAL STATEMENT ANALYSIS

24. If, just prior to a period of rising prices, a company changed its inventory measurement method from
FIFO to LIFO, the effect in the next period would be to
a. Increase both the current ratio and inventory turn-over
b. Decrease both the current ratio and inventory turn-over
c. Increase the current ratio and decrease inventory turn-over
d. Decrease the current ratio and increase inventory turn-over

25. When a balance sheet amount is related to an income statement amount in computing a ratio,
a. The balance sheet amount should be converted to an average for the year.
b. The income statement amount should be converted to an average for the year.
c. Both amounts should be converted to market value.
d. Comparisons with industry ratios are not meaningful.

26. On December 31, 19x0 the Balance Sheet of Belle Co. disclosed total assets of P8, 000,000, current
liabilities of P1, 500,000 and long-term debt of P2, 400, 000. Common stock outstanding amounted to
500,000 shares, while 100,000 shares of P10 par value preferred stock were outstanding. The retained
earnings account indicated a deficit balance of P2, 000, 000. Belle’s book value per share of common stock
as of December 31, 19x0 is
a. P16.00
b. P6.20
c. P12.20
d. P8.20
27. How are dividends per share for common stock used in the calculation of the following?
Dividend per-share Earnings
Payout ratio per share
a. Denominator denominator
b. Denominator Not used
c. Numerator Not used
d. Numerator Numerator

28. During 19x5, Reuel Company purchased P1, 920, 000 of inventory. The cost of goods sold for 19x5 was
P1, 800, 000 and the ending invenotyr at December 31, 19x5 was P360, 000. What was the inventory turn-
over for 19x5?
a. 5.0 b. 5.3 c. 6.0 d. 6.4

V. COST-VOLUME-PROFIT ANALYSIS
The following data apply to items 29-33
Lara Company produces a single product. It sold 25, 000 units last year with the following results:

Sales P625, 000

Variable Costs P375, 000
Fixed Costs 150, 000 525, 000
Net Income before taxes 100, 000
Income Taxes (45%) 45, 000
Net Income P 55, 000

In an attempt to improve its product, Lara is considering replacing a component part in its product that has
a cost of P2.50 with a new and better part costing P4.50 per unit in the coming year. A new machine would
also be needed to increase plant capacity. The machine would cost P18, 000 with a useful life of 6 years
and no salvage value. The company uses straight line depreciation on all plant assets.

29. What was Lara Company’s break-even point in number of units last year?
a. 6, 000 b. 15, 000 c. 21, 000 d. 18, 000

30. How many units of product would Lara Company have had to sell in the last year to earn P77, 000 in
net income after taxes?
a. 29, 000 b. 23, 000 c. 22, 700 d. 29, 300

31. If Lara Company holds the sales price constant and makes the suggested changes, how many units of
product must be sold in the coming year to break-even?
a. 15, 300 b. 18, 750 c. 19, 125 d. 21, 000

32. If Lara Company holds the sales price constant and makes the suggested changes, how many units of
the product will the company have to sell to make the same net income after taxes as last year?
a. 31, 625 b. 31, 250 c. 33, 500 d. 25, 300
33. If Lara Company wishes to maintain the same contribution margin ratio, what selling price per unit of
product must it charge next year to cover the increased material costs?
a. P27.00 b. P25.00 c. P32.50 d. P28.33

VI. COMPREHENSIVE BUDGETING

34. For May 19x1, Young Company has budgeted its cash receipts at P125, 000 and its cash disbursements
at P138, 000. The company’s cash balance on May 1 is P17, 000. If the desired May 31 cash balance is P20,
000, then how much cash must the company borrow during the month (before considering any interest
payments)?
a. P4, 000 b. P8, 000 c. P12, 000 d. P16, 000

VII. STANDARD COSTS AND PERFORMANCE EVALUATION

35. Which of the following factors is not likely to be considered by management in determining whether a
variance should be regarded as an exception?
a. Consistency of occurrence over time.
b. Ability to control the item related to the variance.
c. Nature of the item related to the variance.
d. Costing method used to calculate the variance.
VIII. Costing Approaches: Absorption Costing/Variable Costing

36. The accountant for the Dover Company forgot to make an adjusting entry to record depreciation for
the current year. The effect of this error would be:
a. An overstatement of net income and an understatement of assets.
b. An overstatements of assets offset by an understatement of owner’s equity.
c. An overstatement of assets, net income and owner’s equity.
d. An overstatement of assets and of net income and an understatement of owner’s equity.

IX. DECENTRALIZED OPERATIONS AND TRANSFER PRICING

37. Beta Market has 3 stores: P, Q and R. During 19x8, Store P had a contribution margin of P24, 000 and a
contribution margin ratio of 30%. Store Q had variable costs of P48, 000 and a contribution margin ratio of
40%. Store R had variable costs of P84, 000 which represented 70% of sales in the store. For 19x8, Star
Market’s total sales were
a. P320, 000
b. P360, 000
c. P440, 000
d. P280, 000

38. Khi Company has two divisions J and K. During 19x2, the contribution margin in J was P30, 000. The
contribution margin ration in K during 19x2 was 40%, its sales were P125, 000 and its segment margin was
P32, 000. The common fixed expenses in the company were P40, 000 and the company’s net income for
the year was P18, 000. The segment margin for Division J for 19x2 was
a. P26, 000
b. P32, 000
c. P8, 000
d. P58, 000

X. USING COST DATA FOR DECISION MAKING

39. Picnic Items, Inc. manufactures coolers that contain a freezable ice bag. For an annual volume of 10,
000 units, fixed manufacturing costs of P500, 000 are incurred. Variable costs per unit amounts are:
Direct materials P80
Direct Labor 15
Variable Factory Overhead 20
Bags Corporation offered to supply the assembled ice bag for P40 with a minimum order of 5, 000 units. If
picnic accepts the offer it will be able to reduce variable labor and overhead costs by 50%. The direct
materials for the freezable ice bag will cost Picnic P20 if it will produce it. Considering Bags Corporation
offer, Picnic should
a. Buy the freezable ice bag due to P150, 000 advantaged.
b. Produce the freezable ice bag due to P225, 000 advantaged.
c. Produce the freezable ice bag due to P25, 000 advantaged.
d. Buy the freezable ice bag due to P50, 000 advantaged.

XI. QUANTITATIVE METHODS

40. A small company makes only two products with the following two production constraints representing
two machines and their maximum availability:
2 X + 3 Y < 18
2 X + Y < 10

Where: X = the units of the first product

Where: Y = the units of the second product
If the profit equation is Z = P4 X + P2 Y, the maximum possible profit is
a. P20
b. P21
c. P18
d. P24

XII. WORKING CAPITAL MANAGEMENT

41. Which of the following characteristics are generally associated with a “conservative” financial policy?
a. High current assets relative to sales and high current liabilities relative to total assets.
 b. High current assets relative to sales and low current liabilities relative to total assets.
c. Low current assets relative to sales and high current liabilities relative to total assets.
d. Low current assets relative to sales and low current liabilities relative to total assets.

42. The Manila Commercial Bank and Rap Corp. signed a loan agreement subject to the following terms.
a. Stated interest rate of 18% on a one-year discounted loan; and
b. 15% compensating non-interest bearing checking account balance to be maintained by Rap with Manila
Commercial Bank.
The net proceeds of the loan was P1 million. The principal amount of the loan was
a. P1, 176, 471
b. P1, 000, 000
c. P1, 492, 537
d. P1, 219, 512

43. Three suppliers of East Corporation offer different credit terms. West Co. offers terms of 1 ½ / 15, net
30. North Corp. offers terms of 1/10. Net 30. South Inc. offers terms of 2/10, net 60. East Corp. would have
to borrow from a bank at an annual rate of 12% in order to take any cash discounts. Which one of the
following would be the most attractive for Ma Corp.? (Assume 360 days a year).
a. Purchase from West Co., pay in 15 days and borrow any money needed from the bank.
b. Purchase from West Co., pay in 30 days and borrow any money needed from the bank.
c. Purchase from South Inc., pay in 60 days and borrow any money needed from the bank.
d. Purchase from North Corp. and pay in 30 days.

XIII. CASH AND SHORT TERM INVESTMENT MANAGEMENT

44. Ken Lumber Company obtained short term bank loan for P1, 000, 000.00 at an annual interest rate of
12%. As a condition of the loan Ken is required to maintain a compensating balance of P200, 000.00 in its
checking account. The checking account earns interest at an annual rate of 6%. Ken would otherwise
maintain only P100, 000.00 in its checking account for transactional purposes. Ken’s effective interest cost
of the loan is
a. 12%
b. 14%
c. 13.50%
d. 12.67%

45. Fabella Company budgeted sales on account of P120, 000 for July, P211, 000 for August and P198, 000
for September. Collection experience indicates that 60% of the budgeted sales will be collected the
amount after the sale, 36% the second month, and 4% will be uncollectible. The cash receipts from
accounts receivable that should be budgeted for September would be
a. P169, 800
b. P147, 960
c. P197, 880
d. P194, 760

XIV. RECEIVABLES MANAGEMENT

46. Changing a firm’s credit terms from 2/20, net/60 to 2/10, net/30 will generally
a. Increase the average collection period and increase sales
b. Increase the average collection period and reduce sales
c. Reduce the average collection period and increase sales
d. Reduce the average collection period and reduce sales.

47. If a firm purchases raw materials from its supplier on a 2/10, net/60 cash discount basis, the
equivalent annual interest rate (using a 360-day year) of foregoing the cash discount and making payment
on the 60th day is
a. 14.7%
b. 73.5%
c. 12.2%
d. Some amount other than those given above

48. If a firm’s credit terms require payment within 45 days but allow a discount of 2% if paid within 15 days
(using a 360-day year), the approximate cost/benefit of the trade credit terms is
a. 2%
b. 16%
 c. 48%
d. 24%

49. When a company offers credit terms of 2/10, net/30, the annual interest cost, based on a 360-day
year, is
a. 24.0%
b. 24.5%
c. 35.3%
d. 36.7%

XV. INVENTORY MANAGEMENT

50. The size of safety stocks for inventory is important for most firms. Though several factors can be cited
as contributing to the determination of the size of safety stocks that a firm should carry, the issue can
often be reduced to a single factor. Which one of the following statements best summarizes the factor that
affects the level of safety stock that a firm will carry?
a. The amount of idle cash management believes it has to invest in safety stock.
b. The rapidity with which the inventory position will turn over.
c. The level of production the firm’s bank is willing to finance.
d. The level of uncertainty with respect to an out-of-stock condition that management is willing to
accept.

51. The following information regarding inventory policy was assembled by the JRJ Corporation. The
company uses a 50-week year in all calculations.
Sales 10, 000 units per year
Order Quantity 2, 000 units
Safety Stocks 1, 300 units
Lead Time 4 weeks

The reorder point is

a. 3, 300 units
b. 2, 100 units
c. 100 units
d. 1, 300 units

XVI. CAPITAL BUDGETING

Questions 52 and 53 are based on the following data:

Allo foundation, a tax exempt organization, invested P200, 000 in a five-year project at the beginning of
19x5. Allo estimates that the annual cash savings from this project will amount to P65, 000. The P200, 000
of assets will be depreciated over their five-year life on the straight line basis. On investments of this type,
Allo’s desired rate of return is 12%.

52. The net present value of the project is

a. P34, 325
b. P36, 400
c. P90, 000
d. P125, 000

53. Allo’s time-adjusted rate of return on this project is

a. Less than 12%
b. Less than 14%, but more than 12%
c. Less than 16%, but more than 14%
d. More than 16%

54. Under the time-adjusted rate of return capital budgeting technique, it is assumed that cash flows are
reinvested at the
a. Cost of capital
b. Hurdle rate of return
c. Rate earned by the investment
d. There is no assumption about reinvestment of cash flows
55. Rano Co. has the opportunity to invest in a two-year project which is expected to produce cash flow
from operation, net of income taxes, of P100, 000 in the first year and P200, 000 in the second year. Rano
has a cost of capital of 20%. For this project, Rano should be willing to invest immediately a maximum of
a. P283, 300
b. P249, 900
c. P222, 100
d. P208, 200

56. The net present value capital budgeting technique can be used when cash flows from period to period
are:
Uniform Uneven
a. No Yes
b. No No
c. Yes No
d. Yes Yes

57. It is assumed that cash flows are reinvested at the rate actually earned by the investment in which of
the following capital budgeting techniques?
Time-adjusted rate of return Net present value
a. Yes Yes
b. Yes No
c. No No
d. No Yes

58. If income tax considerations are ignored, how is straight line depreciation expense used in the
following capital budgeting techniques?
Time-adjusted rate of return Net present value
a. Excluded Excluded
b. Excluded Included
c. Included Excluded
d. Included Included

59. The payback capital budgeting technique considers:

Income over entire Time value

Life of project of money
a. No No
b. No Yes
c. Yes Yes
d. Yes No

Questions 60 and 61 are based on the following

Consideration is being given to the possible purchase of a P30, 000 machine for Alo, which is expected to
result in a decrease of P12, 000 per year in cash operating expenses. This machine, which has no residual
value, has an estimated useful life of five years and will be depreciated on a straight-line basis. (Ignore
income taxes).

60. For the new machine, the simple rate of return based on initial investment would be
a. 12%
b. 20%
c. 30%
d. 40%

61. If income taxes are ignore, the payback period for the new machine would be
a. 1.67 years
b. 2.50 years
c. 4.17 years
d. 5.00 years

XVII. FINANCING DECISIONS

62. For 19x9, Nelson Industries increased earnings before interest and taxes by 17%. During the same
period, net income after tax increased by 42%. The degree of financial leverage that existed during 19x9 is

a. 1.70
b. 4.20
c. 2.47
d. 5.90

XVIII. PROJECT FEASIBILITY STUDY

63. Which of the following is not an activity covered by feasibility study?

a. Activity based accounting of the endeavor leading to a conclusion
b. Collection of data
c. Evaluation and analysis of data collected
d. Formulation of recommendation

64. Among the following major parts of a project feasibility study, which grouping is considered critical?
a. Management, financial and social returns
b. Technical. Financial and environmental aspects
c. Economic benefits, management, financial
d. Marketing, engineering or technical and financial

65. The statements below about project feasibility studies are the true except:
a. Any change which can materially alter the assumptions used in the preparation of the forecast
will render it useless
b. It is important for government agencies in order to determine entitlement to government
incentives
c. It also covers the social desirability aspects of a proposed undertaking
d. Since data gathering is a basic step in its preparation, all the necessary and required information
will always be available.

66. In a project feasibility study, which of the following is true?

a. The study is not affected by any significant change in actual business conditions as compared to
the assumptions used in making the forecast
b. The study is based on available information and opinions of the party involved in the preparation
of the study.
c. (a) and (b)
d. None of the above
ANSWER KEY
1. A 44. D
2. A 45. A
3. C 46. D
4. C 47. A
5. B 48. D
6. C 49. D
7. A 50. D
8. A 51. B
9. D 52. A
10. D 53. D
11. A 54. C
12. B 55. C
13. D 56. D
14. C 57. B
15. A 58. A
16. B 59. A
17. D 60. B
18. A 61. B
19. C 62. C
20. A 63. A
21. B 64. D
22. A 65. D
23. B 66. B
24. D
25. A
26. B
27. C
28. C
29. B
30. A
31. C
32. A
33. D
34. D
35. D
36. C
37. D
38. A
39. C
40. A
41. B
42. C
43. A