All Cups

EASY
1. Amortization of patent includes a credit to

a. The patent account

b. An accumulated amortization account
c. An accumulated depreciation account
d. An expense account
 Answer: A
Amortization of patents includes a credit to the patent account.
There is no accumulated amortization
account.
In a statement of cash flows, receipts from sales of property, plant
2.
and equipment should generally be
classified as cash inflows from

a. Operating activities
b. Investing activities
c. Financing activities
d. Either operating or investing activities
 Answer: B
According to PAS 7, investing activities are the acquisition
and disposal of long-term assets and other
investments that are not considered to be cash equivalents.
3. For purposes of allocating joint costs to joint products, the sales
price at point of sale, reduced by cost
to complete after splitoff, is assumed to be equal to the

a. Joint costs.
b. Total costs.
c. Net sales value at split-off.
d. Sales price less a normal profit margin at point of sale.
 Answer: C
Joint costs may be allocated to joint products based on either
sales price or some physical measure.
Methods which use estimated sales price include relative sales
value at split-off, estimated net realizable
value (NRV), and constant gross margin percentage NRV.
Under the sales value at split-off method, joint
costs are allocated based on the ratio of each product’s sales
value at split-off to total sales value at split
off for all joint products.
4.Which of the following standard costing variances would be least
controllable by a production
supervisor?

a. Overhead volume.
b. Overhead efficiency.
c. Labor efficiency.
d. Material usage.
 Answer:A
The requirement is to determine the standard costing variance which would
be least controllable by a production supervisor. The overhead output level
(volume) variance arises because the actual production volume level achieved
usually does not coincide with the production level used as a denominator
volume for calculating a budgeted overhead application rate. The overhead
output level variance results from treating a fixed cost as if it were a variable
cost. Answers (b), (c), and (d) are incorrect because all of
these variances arise when the quantity of actual inputs used differs from the
quantity of inputs that should have been used. A production manager would
have more control over inputs to production than over the determination of
the denominator volume.
5. In a job-costing system, issuing indirect materials to production
increases which account?

a. Materials control.
b. Work in process control.
c. Manufacturing overhead control.
d. Manufacturing overhead allocated.
 Answer: C
The requirement is to identify the account that is increased when
indirect materials are issued to
production. Answer (c) is correct because the cost of indirect
materials used increases the Manufacturing
Overhead Control account and decreases Materials Control.
6. An auditor is unable to obtain absolute assurance that
misstatements due to fraud will be
detected for all of the following except
a. Employee collusion.
b. Falsified documentation.
c. Need to apply professional judgment in evaluating fraud risk
factors.
d. Professional skepticism.
 Answer: D
While an auditor must exercise professional skepticism when
performing an audit it does not represent a
limitation that makes is impossible to obtain absolute
assurance
7. The process or means by which the sovereign, through its law-
making body raises income to defray the necessary
expenses of the government:

a. Toll c. Taxation
b. License fee d. Assessment
Answer: C
Taxation
8. One of the following is a false statement about double taxation.
Which is it?

a. There is no constitutional prohibition on double taxation.

b. Direct duplicate taxation is a valid defense against a tax
measure if it is violative of the equal protection clause.
c. Absence of any of the elements of direct double taxation makes
it indirect duplicate taxation.
d. A 20% final withholding tax on interest income on bank
deposits and a 5% gross receipts tax on banks is a direct
duplicate taxation.
 Answer: D
A 20% final withholding tax on interest income on bank deposits and a 5%
gross receipts tax on banks is a direct duplicate taxation.
9. Accounts receivable hypothecated against borrowings should be

a. Excluded from the total receivables, with disclosure

b. Excluded from the total receivables, with no disclosure
c. Excluded from the total receivables and a gain or loss is
recognized
d. Disclosed in the notes
 Answer: D
Hypothecation is another term for pledge. Receivables pledged as
collateral need to be disclosed in the
notes.
10. An audit of the financial statements of Excel Corporation is being
conducted by an external auditor. The external
auditor is expected to

a. Express an opinion as to the fairness of Excel’s financial

statements.
b. Express an opinion as to the attractiveness of Excel for
investment purposes.
c. Certify to the correctness of Excel’s financial statements.
d. Critique the wisdom and legality of Excel’s business decisions.
 Answer: A
Express an opinion as to the fairness of Excel’s financial
statements.
11. Which of the following terms represents the residual income that
remains after the cost of all capital, including equity
capital, has been deducted?
a. Free cash flow.
b. Market value-added.
c. Economic value-added.
d. Net operating capital.
 Answer: C
Economic value-added.
12.The bill was accepted as follows: “Accepted payable to PNB
Manila (Sgd) X”. The acceptance is?
a. General acceptance c. Qualified conditional
b. Qualified local d. Qualified acceptance
 Answer: A
General acceptance
13. It is one brought by one or more of the stockholder or members
in the name and on behalf of the corporation to
redress wrongs committed against it or to protect or vindicate
corporate rights, whenever the officials of the
corporation refuse to sue, or are the ones to be sued or hold
control of the corporation.

a. Mandamus c. Appraisal right

b. Quo warranto d. Derivative suit
 Answer: D
Derivative suit
14. Under IFRS a parent may exclude a subsidiary from
consolidation only if all of the following
conditions exist, except
a. Its parent prepares consolidated financial statements that
comply with IFRS
b. It has one class of stock
c. It does not have any debt or equity instruments publicly traded
d. It is wholly owned as its owners do not object to
nonconsolidation
 Answer: B
The requirement is to identify the item that is not a condition
to exclude a subsidiary from
consolidation under IFRS. Answer (c) is correct because it is
not required that the
subsidiary have only one class of stock.
15. A partnership in liquidation has converted all assets into cash and paid all
liabilities. The order of payment

a. Will have amounts owed by partners other than for capital and profits
take
precedence over amounts due to partners with respect to their capital
accounts.
b. Will be by any manner that is both reasonable and rational for the
partnership.
c. will be according to the partners’ residual profit and loss sharing ratios.
d. Will have amounts due to partners with respect to their capital
accounts take
precedence over amounts owed by partners other than for capital and
profits.
 Answer: A
The order of payment upon liquidation of a partnership will
have amounts owed by
partners other than for capital and profits take precedence
over amounts due to partners
with respect to their capital accounts.
Average
1. Property was purchased on December 31, 2018 for 20 million
baht. The general price index in the country was 60.1 on that
date. On December 31, 2020, the general price index had risen to
240.4. If the entity operates in a hyperinflationary economy, what
would be the carrying amount in the financial statements of the
property after restatement?
a. 20 million baht
b. 1.2 million baht
c. 80 million baht
d. 4.808 million baht
 Answer: C
20 million x 240.4 / 60.4 = 80 million baht
2. Which of the following is not an objective for each entity
accounting for transfers of financial assets?

a. To derecognize assets when control is gained.

b. To derecognize liabilities when extinguished.
c. To recognize liabilities when incurred.
d. To derecognize assets when control is given up.
 Answer: A
To derecognize assets when control is gained is not an objective in
accounting for transfers of financial
assets. When control is gained, the assets should be recognized.
Answer (b) is incorrect because an
objective is to derecognize liabilities when extinguished. A
liability no longer exists, and it should be
removed from the balance sheet. Answer (c) is incorrect because
recognizing liabilities when incurred is
an objective. Answer (d) is incorrect because derecognizing assets
when control is given up is an
objective in accounting for transfers of financial assets.
3. On December 1, 2017, Centurion Inc. authorized Cook to operate
as a franchise for an initial franchise fee of P3,400,000. P900,000
was received upon signing the contract, and the balance is to
be paid by a non-interest bearing note, due in five equal annual
installments beginning December 31, 2014. Prevailing market
rate is 12%. PV factor is 3.60478. The down payment is
nonrefundable and it represents a fair measure of the services
already performed by Centurion, however, with regards to
the balance, substantial future services are still required. How
much is the deferred franchise revenue to be recognized as of
December 31, 2017?
 Deferred revenue:
500,000 * 3.60478 = 1,802,390
4. Gary Corporation has developed the following flexible budget formula for monthly
overhead:
For output of less than 200,000 units: P36,600 + P.80(units)
For output of 200,000 units or more: P43,000 + P.80(units)
How much overhead should Gary expect if the firm plans to produce 200,000 units?
P43,000 + P0.80(200,000) = P43,000 + P160,000 =
P203,000
5. Ernesto donated a mobile phone worth P32,000 to Hubert orally and delivered the
unit to Hubert who accepted.
Which statement is most accurate?

a. The donation is void and Ernesto may get the mobile phone back.
b. The donation is void but Ernesto cannot get the mobile phone back.
c. The donation is voidable and may be annulled.
d. The donation is valid.
 Answer : A
The donation is void and Ernesto may get the mobile phone back.
6. In three of the following corporate proposals, a dissenting
stockholder has the right to surrender his shares of stock to
the corporation and demand for the payment of their fair market
value. Which is the exception?

a. Sale, mortgage or disposition of all or substantially all of the

corporate assets
b. Shortening or extending the corporate term
c. Investment of corporate funds in another corporation or
business
d. Entering into management contract with another corporation
 Answer: D
Entering into management contract with another corporation
7. On June 30, 2017, the GENLUNA COPPER MINES, INC. purchased a
copper mine for ₱14,580,000. The estimated capacity of the mine was
1,620,000 tons. Genluna Copper Mines expects to extract 15,000 tons of ore
a month with an estimated selling price of ₱50 per ton. Production started
immediately after some new machines costing ₱1,800,000 were bought on
June 30, 2017. These new machines had an estimated useful life of 15 years
with a scrap value of 10% of cost after the ore estimate has been extracted
from the property, at which time the machines will already be useless.
Genluna’s books show the following expenses for 2017:
Depletion expense ₱1,215,000
Depreciation—Machinery 120,000
Recorded depletion expense was
a. Overstated by ₱270,000.
b. Understated by ₱270,000.
c. Overstated by ₱405,000
d. Understated by ₱405,000.
 ANSWER: C
Depletion rate per ton (₱14,580,000 / 1,620,000) ₱9
Copper ore mined in 2017 (15,000 x 6 months) x 90,000
Depletion for 2017 ₱810,000
Depletion per books 1,215,000
Overstatement of depletion expense ₱405,000
8. Genson Distribution Inc., a VAT taxpayer, had the following data in a month:
Cash sales P200,000
Open account sales 500,000
Consignment: 0 to 30 days old (on which there were remittances from consignees of
P200,000) 600,000
31 to 60 days old 700,000
61 days old and above 900,000

How much is the output tax?

a. P348,000
b. P264,000
c. P216,000
d. P108,000
 ANSWER: C
Cash sales P200,000
Open account sales 500,000
Consignment: 0 to 30 days old (on which there were remittances
from consignees of P200,000) 200,000
61 days old and above 900,000
Total VATABLE SALES 1,800,000
VAT RATE 12% OUTPUT
VAT 216,000
9. Camper Company acquires a subsidiary with a view to selling it.
The subsidiary meets the criteria to be classified as held for sale.
At the balance sheet date, the subsidiary has not been sold and
six months have passed since its acquisition. At the balance sheet
date, the carrying value of the subsidiary is P4,500,000; its
estimated selling price is P6,000,000 and estimated cost to sell is
P1,200,000. At how much should the subsidiary be valued at
balance sheet date?
Estimated selling price P6,000,000
Less: Cost to sell 1,200,000
Fair Value P4,800,000
Carrying Value P4,500,000
Lower P4,500,000
10. Under Central Bank Circular 537 series of 2006 (Dated: July 18, 2006),
which of the following is not legal tender:

a. P10,000 in the denomination of P20 bills

b. P900 in the denomination of P5 coins
c. P750 in the denomination of P1 coins
d. P120 in the denomination of P0.25 coins
 Answer: D
P120 in the denomination of P0.25 coins
Difficult
1. Abe, married resident alien, died on January 15, 2017. She left the
following properties, expenses and obligations:
Community properties, Philippines (including family home valued at
P1,800,000) P5,000,000 Community properties, Abroad
2,000,000
Exclusive properties, Philippines 3,000,000
Actual funeral expenses 300,000
Judicial expenses 200,000
Medical expenses (incurred w/in 1yr. before death) 600,000
Devise to National Gov’t 50,000
Legacy to Local Gov’t 70,000
The net taxable estate is:
RESIDENT ALIEN
Particulars Exclusive Community Total
All Properties w/i & w/o 3,000,000 7,000,000 10,000,000 Funeral
Expense (200,000) (200,000)
Judicial Expense (200,000) (200,000) Transfers
(50,000 + 70,000) (120,000) (120,000) Gross
Estate 2,880,000 6,600,000 9,480,000 Share of Surviving
Spouse (3,300,000)
Medical Expenses (500,000)
Family Home (1/2 of 1,800,000) (900,000)
Standard Deductions (1,000,000)
Net Estate 3,780,000
2. When a third person of his own accord and even without the knowledge
of the original debtor assumes the obligation with the consent of the
creditor:
Expromission
3. Red Company reported net income of P7,410,000 for the current year. The auditor
raised questions about the following amounts that had been included in the net
income:
Equity in earnings of Chester Company – 40% interest P1,700,000
Dividend received from Chester Company 300,000
Unrealized loss on available for sale investments (540,000)
Gain on early retirement of bonds payable 2,100,000
Adjustment of profit of prior year for error in depreciation, net of tax effect
(750,000)
Loss from fire (1,500,000)
Gain from change in fair value attributable to credit risk of financial liability
at FVPL 500,000

What should be reported as adjusted net income?

Unadjusted net income 7,410,000
Dividend received from Chester Company (300,000)
Unrealized loss on available for sale investments 540,000
Adjustment of profit of prior year for error in depreciation, net of tax
effect 750,000
Gain from change in fair value attributable to credit risk of financial
liability
at FVPL 500,000
Adjusted net income 7,900,000
4. Jersey, Inc. is a retailer of home appliances and offers a service contract on each
appliance sold. Jersey sells appliances on installment contracts, but all service
contracts must be paid in full at the time of sale.
Collections received for service contracts should be recorded as an increase in a

a. Deferred revenue account.

b. Sales contracts receivable valuation account.
c. Stockholders’ valuation account.
d. Service revenue account.
 Answer : A
The revenues from service contracts should be recognized on
a pro rata basis over the term of the
contract. This treatment allocates the contract revenues to
the period(s) in which they are earned. Since
the sale of a service contract does not culminate in the
completion of the earnings process (i.e., does
not represent the seller’s performance of the contract),
payments received for such a contract should be
recorded initially in a deferred revenue account.
5. On November 30, 2016, Malou Basil, an alumnus of Santo School, a private, not-for-
profit high school, contributed P 15,000, with the stipulation that the donation be
used for faculty travel expenses during 2017. During 2017 Santo spent of the
donation in accordance with Malou’s wishes. For the year ended December 31,
2017, what was the effect of the donation on unrestricted and temporarily restricted
net assets?

a. Unrestricted net assets (Increase); Temporary restricted net assets (No effect)
b. Unrestricted net assets (No effect); Temporary restricted net assets (No effect)
c. Unrestricted net assets (Increase), Temporary restricted net assets (decrease)
d. Unrestricted net assets (No effect); Temporary restricted net assets (decrease)
 Answer: D
Reclassifications are reported on the statement of activities as “net assets
released from restrictions. “Net assets released from restrictions of P
15,000 are reported as a negative amount for temporarily restricted nets
assets in 2017, while net assets released from Restrictions of P 15,000 are
reported as a positive amount for unrestricted net assets for 2017. The
P15,000 of travel expense is reported on the reported on the statement of
activities as decreases in unrestricted net assets. This means that the use
of the donation for faculty travel had no effect on unrestricted net assets
in 2017. Note that, when the donation was received in 2016, temporarily
restricted net assets increased by P15,000 on the statement of activities
prepared for 2016.
Tie Breaker
Hebrews Corp. was contracted by Mr. Tristan P. to construct 35 condominium units. The estimated total
cost of construction was P28,000,000. Hebrews bills its clients at 120% of total costs estimated to
complete a project. Details regarding the contract are given below:

Units finished Costs incurred to date Estimated cost at completion

2015 10 P8,412,500 P33,650,000

2016 18 P20,735,000 P31,900,000
2017 7 P31,500,000 ?
2015: Anticipated total loss 50,000
2016: 28/35 = 80% Percentage of completion
Construction price 33,600,000
Estimated total cost 31,900,000
Gross profit 1,700,000
Percentage of completion 80%
RGP to date 1,360,000
Less: RGP, 2015 (50,000)
RGP, 2016 1,410,000
2. Which of the following stipulations or features of a promissory note (PN)
affect its negotiability, assuming that the
PN is otherwise negotiable?
I. The date of the PN is “February 30, 2012.”
II. The PN bears interest payable on the last day of each calendar quarter
at a rate equal to five percent (5%) above the then prevailing 91-day
Treasury Bill rate as published at the beginning of such calendar quarter.
III. The PN gives the maker the option to make payment either in money
or in quantity of palay of equivalent value.
IV. The PN gives the holder the option either to require payment in money
or to require the maker to serve as the
bodyguard or escort of the holder for 30 days.
a. I and III c. I, II and III
b. III only d. I, II, III and IV
Answer : B
III only
3. Crow, Inc.is indebted to Scare under an P8,000,000, 10%, four-
year note dated December 31, 2014. Annual interest of P800,000
was paid on December 31,2015 and 2016. During 2017, Crow
experienced financial difficulties and is likely to default unless
concessions are made. On December 31, 2017, Scare agreed to
restructure the debt as follows:
 Interest of P800,000 due December 31, 2017 was waived.
 Extended the maturity to December 31, 2019
 The principal amount is reduced to P7,000,000
 The interest of P770,000 of the new principal will be paid on
maturity date.
Assuming an income tax rate of 32%, how much should Crow
report as gain in restructuring in its profit or loss for the year
ended December 31, 2017?
Carrying Value of Liability
Face Value P8,000,000
Accrued Interest 800,000 P8,800,000
Less: Restructured debt
New Principal P7,000,000
Future Interest 770,000
Total Future Amount P7,770,000
X PV of 10% after a year 0.909 7,062,930
Gain on Restructuring P1,737,070
Less: Income tax (P1737070 x 32%) 555,862
Net P1,181,208
4. An entity purchased P5,000,000 of 8%, 5-year bonds on January
1, 2017 with interest payable on June 30 and December 31. The
bonds were purchased for P5,100,000 plus transaction cost of
P108,000 at an effective interest rate of 7%. The business model
for this investment is to collect contractual cash flows and sell the
bonds in the open market. On December 31, 2017, the bonds
were quoted at 106.
If the entity elected the fair value option, what total amount of
income should be recognized for
2017?
Market value on December 31, 2017 5,300,000
Acquisition cost, excluding transaction cost 5,100,000
Gain from change in fair value 200,000
Interest income (8% x 5,000,000) 400,000
Total income 600,000
5. A company enters into an agreement with a firm who will factor the
company’s accounts receivable. The factor agrees to buy the
company’s receivables, which average P100,000 per month and have
an average collection period of 30 days. The factor will advance up
to 80% of the face value of receivables at an annual rate of 10% and
charge a fee of 2% on all receivables purchased. The controller of
the company estimates that the company would save P18,000 in
collection expenses over the year. Fees and interest are not deducted
in advance. Assuming a 360-day year, what is the annual cost of
financing?
The total amount paid to the factor would be (P100,000 × 80%) ×
10% + (P100,000 × 12) × 2% = P32,000. The net cost is equal to
P14,000 (P32,000 – P18,000 cost savings). Therefore, the annual
interest cost is equal to P14,000/P80,000 = 17.5%.