EASY

EASY – THEORY OF ACCOUNTS

1. If an entity uses the calendar year changes its business model for managing financial assets on
February 1, 2013, applying PFRS 9 – Financial Instruments, the reclassification date is on
_________________________

EASY – PRACTICAL ACCOUNTING 1

2. Paolo Company holds an investment of 30% in the ordinary shares of Uneta Company, an associate
that has a net assets of P4,000,000 for the year ended December 31, 2014 which includes the current
year net profit of P490,000. The associate has issued 100,000 9% cumulative preference shares with
a nominal value of P10. The preference shares are classified by the associate as equity instruments.
The associate declared dividends on the cumulative preference shares amounting to P270,000 for
dividends in arrears and current year’s dividend. How much is Paolo Company’s share in profit or loss
of the associate for calendar year ended December 31, 2014?

EASY – PRACTICAL ACCOUNTING 2

3. Samsung Company consigned 10 refrigerators to Apple Sales Company. Each refrigerator cost
P12,000. The freight on the shipment amounting to P500 each was paid by Samsung. Apple Sales
Company returned 1 unit to Samsung in good condition. Apple Sales Company paid P200 for the
shipment of the returned unit. Apple Sales Company reported that only 8 units were sold at a price
that yield 25% gross profit rate. Apple Sales Company remitted the amount due to Samsung Company
after deducting 20% commission and freight of the returned units. The net profit to be recognized by
Samsung Company on the consignment amounted to:

EASY – BUSINESS LAW AND TAXATION

4. In 2010, Demi Corporation purchased a residential house and lot in installment at an installment
contract price of P2,600,000. The corporation allowed its President and his family to use it as their
residential house. The fair market value per BIR and per Assessor’s Office were P2,800,000 and
P2,607,000 respectively. How much was monthly fringe benefits tax, if any?

EASY – AUDITING THEORY

5. This is an unauthorized program placed within an authorized one. Typically, these programs wait
until a specific time, when they act and then erase all evidence of their existence.

EASY – MANAGEMENT ADVISORY SERVICES

6. Rhada Ornaments sells lawn ornaments for P15 each. Rhada's contribution margin ratio is 40%. Fixed
costs are P32,000. Should fixed costs increase 30%, how many additional units will Rhada have to
produce and sell in order to generate the same net profit as under the current conditions?
EASY – AUDITING PROBLEMS
7. On January 1, 2009, Mitoy Company purchased an asset for P2,500,000 with an estimated economic
life of ten years with no salvage value. Straight-line method of depreciation is to be used. On January
1, 2011, the Company has reliably determined that the recoverable amount is P1,600,000. On January
1, 2013, the asset has a recoverable amount of P1,860,000. If the Company uses revaluation model to
measure long live assets, what is the amount reported in the shareholders’ equity as revaluation
surplus on December 31, 2013?

AVERAGE – THEORY OF ACCOUNTS

1. Aria and Ezra entered into a joint arrangement to form “A” team Corporation which shall
manufacture materials required by Aria and Ezra for their own, individual manufacturing processes.
The arrangement ensures that the parties operate the facility that produces the materials to the
quality specifications of the parties.

Each party shall have 50% ownership interest in “A” team Corporation. “A” team Corporation shall
have its own assets, incurs its own obligations, generate its own income, and incurs its own expenses.

In addition to the facts stated above, it was agreed further that:

 Aria and Ezra shall purchase all of the output produced by “A” team Corporation in a ration of
50:50. “A” team Corporation cannot sell any of its output to third parties, unless this is approved by
Aria and Ezra.
 The price of the output sold to the parties is set by both parties at a level that designed to cover the
costs of production and administrative expenses incurred by “A” team Corporation. On the basis of
this operating model, the arrangement is intended to operate at a break-even level.

Which of the following statements is incorrect?

a. The obligation of the parties to purchase all of the output produced by “A” team Corporation
reflects the exclusive dependence of “A” team Corporation upon the parties for the generation
of cash flows. Therefore, the parties have an obligation to fund the settlement of the liabilities
of “A” team Corporation.
b. The fact that the parties have rights to all the output produced by “A” team Corporation means
that the parties are consuming, and therefore have rights to all the economic benefits of the
assets of “A” team Corporation.
c. The facts and circumstances indicate that the arrangement is a joint operation.
d. The facts and circumstances indicate that the arrangement is a joint venture.

AVERAGE – PRACTICAL ACCOUNTING 1

2. Helping Hand Corporation has the following interests in associates Hi (25%) and Hello (30%). During
2013, Hi sold inventories costing P 1,000,000 to Hello at 20% mark-up on cost. As of December 31,
2013, if all of these inventories remain unsold, how much is the profit to be eliminated in the share of
Helping Hand Corporation?
AVERAGE – PRACTICAL ACCOUNTING 2
3. During 2013, goods were shipped to the branch at 120% above cost. The reciprocal account in the
income statement of the home office amounted to P237,000. The balance of the contra branch
current account reports a balance of P375,000 before adjustment. The beginning inventory of the
branch from the home office at cost is P360,000 and from outsiders, P93,000. The branch purchased
goods from outsiders during the year amounting to P125,200. The ending inventory of the branch as
reported in the combined statement of financial position is P345,000. The branch net income as
reported in the combined financial statements and as reported in the branch’s books are P201,125
and P120,750, respectively. How much is the cost of goods sold to be reported in the branch’s income
statement for the year ended December 31, 2013?

AVERAGE – BUSINESS LAW AND TAXATION

4. The engineer or architect who drew up the plans and specifications for a building is liable for damages
if within _________ years from completion of the structure, the same should collapse by reason of a
defect in those plans and specification, or due to the defects in the ground.

AVERAGE – AUDITING THEORY

5. Which of the following procedures is/are appropriate to a review of interim financial information?
I. Read minutes of meetings of stockholders, the board of directors, and committees of the board.
II. Confirm cash balances with all banks and depositories.
III. Make inquiries concerning the accounting system and any significant changes in the internal
control system.
IV. Perform analytical procedures to identify and provide a basis for inquiry about relationships and
individual items that appear unusual.

AVERAGE – MANAGEMENT ADVISORY SERVICES

6. “The Originals” Company has a signature scarf for ladies that is very popular. Certain production and
marketing data are indicated below:
Cost per yard of cloth P40.00
Allowance for rejected scarf 5% of production
Yards of cloth needed per scarf 0.475 yard
Airfreight from supplier P1.00/yard
Motor freight to customers P0.90 /scarf
Purchase discounts from supplier 3%
Sales discount to customers 2%

The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have no
market value. Materials are used at the start of production.

Calculate the standard cost of cloth per scarf that “The Originals” Company should use in its cost
sheets.
AVERAGE – AUDITING PROBLEMS
7. A car rental company acquired vehicles for a total cost of P15,000,000 with the intention of holding
them as rental cars for a limited period and then selling them. The car rental company, in the ordinary
course of business, routinely sells vehicles acquired for car rental. The estimated life of the vehicles
acquired was 8 years and after 6 years, the said vehicles will be available for sale. The proceeds from
the sale of the vehicles was P10,000,000 which happened at the end of the 7th year. What is the
amount of cash outflow and inflow to be classified as investing activities from the initial expenditure
on acquisition of the vehicles (PPE) and from subsequent sale, respectively?

DIFFICULT – THEORY OF ACCOUNTS

1. What is the exact term used under PFRS 3 – Business Combinations, where all combining entities in a
business combination transfer their net assets to a newly formed entity?

DIFFICULT – PRACTICAL ACCOUNTING 1

2. On April 1, 2013, Nina Company acquired 30% of the 100,000 outstanding shares of Jeremy Company
for P3,000,000. This investment gave Nina the ability to exercise significant influence over Jeremy.
The book value of the acquired shares was P2,400,000. The excess of cost over book value was
attributed to an identifiable intangible asset which is undervalued on Jeremy’s statement of financial
position and which had a remaining life of 20 years. For the year ended December 31, 2013, Jeremy
reported a comprehensive income of P1,100,000 which includes a P300,000 revaluation reserve on its
land and paid cash dividends of P200,000 on its ordinary share and thereafter issued 15% share
dividend. Assuming the investment has a recoverable amount of P2,900,00, what is the amount of
impairment loss applying equity method and PAS 36 – Impairment of Assets?

DIFFICULT – PRACTICAL ACCOUNTING 2

3. On June 1, 2013, Mike Inc. entered into a franchise agreement with Ross Co. to sell their products.
The agreement provides for an initial franchise fee of P3M which is payable as follows: P1M cash to
be paid upon signing the contract, and the balance in four equal annual installments every December
1, starting in 2013 as evidenced by a noninterest bearing note for the said balance signed by Mike Inc.
Prevailing market rate is 10% on June 1, 2013.The agreement further provides that Mike Inc. must
pay a continuing franchise fee equal to 5% of its monthly gross sales. Ross Co. incurred direct cost of
P930,564 and indirect costs of P167,400. Mike Inc. started operations on July 1, 2013 and was able to
generate sales of P1,240,000 for 2013. The first installment payment was made in due date. Assuming
collectability of the note is not reasonably assured and the franchisor used installment sales method,
how much is the net income of the franchisor for the year ended December 31, 2013? (Round off PV
factors to 4 decimal places and GP % to whole %)
DIFFICULT – BUSINESS LAW AND TAXATION
4. All taxpayers are required to preserve their books of accounts, including subsidiary books and other
accounting records (e.g., corresponding invoices, receipts, vouchers and returns, among others), for a
period of ________ years reckoned from the day following the deadline in filing a return, or if filed
after the deadline, from the date of the filing of the return, for the taxable year when the last entry
was made in the books of accounts.

DIFFICULT – AUDITING THEORY

5. The procedures applied in an engagement to perform agreed-upon procedures may include which of
the following:
I. Inspection.
II. Inquiry and analysis.
III. Recomputation, comparison and other clerical accuracy checks.
IV. Observation.
V. Obtaining confirmations.

DIFFICULT – MANAGEMENT ADVISORY SERVICES

6. The following data is available for the variance analysis of Xerox Company for the month of August
pertaining to its main product, Photon.

Cost Standards
Direct material 2 pounds at P2.2 per pound
Direct labor 6 hours at P7.5 per hour

Actual results
Units produced 7,800 units
Direct material purchased 32,000 pounds at P2.40
Direct material used UNKNOWN
Direct Labor P362,670

Variances
Materials Quantity Variance P1,100 Favorable
Materials Price Variance P6,400 Unfavorable
Labor Rate Variance P9,420 Unfavorable

Based on the foregoing, what is the actual direct labor hours used and the materials used price
variance (indicate if favorable or unfavorable)?
DIFFICULT – AUDITING PROBLEMS
7. Instagram Co. determined that one of its cash generating units is impaired. Information on the assets
of the CGU is shown below:

Assets Carrying Amount

Inventory (stated at NRV) P 200,000
Investment property (at cost model) 400,000
Building 600,000
Goodwill 300,000
P 1,500,000

 It was estimated that the value in use of the CGU is P800,000 and its fair value less costs to
sell is P900,000.
 The building’s fair value less costs to sell is P510,000.

Determine the carrying value of the Investment property after impairment testing.