REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

The following are common to pledge, chattel mortgage and real mortgage, except:
a. These contracts are constituted to secure the performance of a principal obligation
b. These contracts must be in writing and registered in order to be binding against third
persons
c. The pledgor/mortgagor must be the absolute owner of the thing pledged or mortgaged
d. There can be no valid pledge, chattel, or real mortgage without a valid obligation

FINANCIAL ACCOUNTING AND REPORTING

The following statements are based on PAS 34 (Interim Financial Reporting):

Statement I: An interim financial report is prepared on a consolidated basis if the entity's most
recent annual financial statements were consolidated statements.
Statement II: If an entity publishes a complete set of financial statements in its interim financial
report, the form and content of those statements shall conform to the requirements of PAS 1 for a
complete set of financial statements.
Statement III: An entity shall apply different accounting policies in its interim financial statements
and in its annual financial statements.
a. Only statement I is true
b. Only statement II is true
c. Only statement III is false
d. All of the statements are true

TAXATION

Which of the following statements is not correct?

a. Taxes may be imposed to raise revenues or to provide disincentives to certain activities within
the state.
b. The state can have the power to taxation even if the Constitution does not expressly give it the
power to tax.
c. For the exercise of the power of taxation, the state can tax anything at any time.
d. The provisions of taxation in the Philippine Constitution are grants of power and not
limitations on taxing powers.

MANAGEMENT ADVISORY AND SERVICES

City cruiser accepted a special order of 100 bikes for P 558 each. Their normal selling price is P
698. While their product cost is P564 consisting of Direct Materials P 372, Direct Labor P 90,
Manufacturing Overhead P 102, Fixed portion of Overhead P 90 per unit. In accepting the
special order, it would require additional P 34 direct cost and P 2,400 fixed overhead cost.
Assuming this order would have no effect on other sales. What would be the incremental overhead
costs in accepting the special order?
a. P 2,400
b. P 2,502
c. P 3,600
d. P 5,800
Solution: [( P102 – P 90 ) x P 100] + P2,400 = P 3600

ADVANCED FINANCIAL ACCOUNTING AND REPORTING

HARLEY QUINN Hospital, a nonprofit affiliated with a religious group, reported the following
information for the year ended December 31, 2011:

Gross patient service revenue at the hospital’s full established rates 980,000
Bad debts expense 10,000
Contractual adjustment with the third-party payors 115,000
Allowance for discounts to hospital employees 15,000

On the hospital’s statement of operations for the year ended December 31, 2011, what amount
should be reported as net patient service revenue?

a. P840,000
b. P865,000
c. P850,000
d. P955,000

Solution
Gross patient service revenue P 980,000
Contractual adjustments (115,000)
Allowance for discounts – employees (15,000)
Net Patient Service Revenue 850,000

AUDITING THEORY

The code of professional ethics for CPA’s promulgated by the Board of Accountancy applies to
a. All CPA’s in public practice.
b. All CPA’s in government
c. All CPA’s in public practice and employed in private business.
d. All CPAs in public practice employed in private business and industry, in government
and in education.