INSTRUCTIONS: Select the correct answer for each of the following questions.

Mark only one answer

for each item by shading the corresponding letter of your choice on the answer sheet provided.
STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only.

1. Certain fundamental beliefs called "postulates" underlie auditing theory. Which of the following is
not a postulate of auditing?
A. No long-term conflict exists between the auditor and the management of the enterprise under
audit.
B. Economic assertions can be verified.
C. The auditor acts exclusively as an auditor.
D. An audit has a benefit only to the owners.

2. In all cases, audit reports must

A. Be signed by the individual who performed the audit procedures.
B. Certify the accuracy of the quantitative information which was audited.
C. Communicate the auditor’s finding to the general public.
D. Inform readers of the degree of correspondence between the quantifiable information
and the established criteria.

3. The auditor communicates the results of his or her work through the medium of the
A. Engagement letter
B. Management letter.
C. Audit report
D. Financial statements.

4. As used in auditing, which of the following statements best describes "assertions"?

A. Assertions are the representations of management as to the reliability of the information
system.
B. Assertions are the auditor's findings to be communicated in the audit report.
C. Assertions are the representations of management as to the fairness of the financial
statements.
D. Assertions are found only in the footnotes to the financial statements.

5. The expertise that distinguishes auditors from accountants is in the

A. Ability to interpret generally accepted accounting principles.
B. Requirement to possess education beyond the Bachelor’s degree.
C. Accumulation and interpretation of evidence.
D. Ability to interpret ASC Statements.

6. The framework for auditing and related services as addressed by PSA excludes
A. Review
B. Compilation
C. Tax services
D. Agreed upon procedure

7. It refers to the level of auditor’s satisfaction as to the reliability of an assertion being made by one
party for use by another party.
A. Confidence level
B. Assurance level
C. Reasonableness level
D. Tolerable level
8. Which of the following is true of the report based on agreed-upon-procedures?
A. The report is restricted to those parties who have agreed to the procedures to be performed.
B. The CPA provides the recipients of the report limited assurance as to reasonableness
of the assertion(s) presented in the financial information.
C. The report states that the auditor has not recognized any basis that requires revision of
financial statements.
 D. The report should state that the procedures performed are limited to analytical procedures
and inquiry.

9. Which of the following is not normally a service rendered by public accountants?

A. Management consultation service
B. Internal auditing
C. Attest function
D. Taxation

10. A CPA firm offers management advisory services to clients. Its primary purpose is to
A. Furnish professional advice and assistance which will enable the client to improve
operations.
B. Keep the CPA firm competitive with other firms.
C. Establish the firm as a consultant, thus ensuring its future expansion and growth.
D. Permit the firm’s staff members to acquire expertise in other areas of practice.

11. The government agency tasked by law of implementing and enforcing the regulatory policies of the
national government with respect to the regulation and licensing of the various professions and
occupations under its jurisdiction is
A. PRC
B. BOA
C. COA
D. SEC

12. Which statement is correct regarding AASC?

A. The AASC shall be composed of 15 members plus a Chairman.
B. The chairman and members of the AASC shall be appointed by the President of the
Philippines upon the recommendation of PRC.
C. The chairman and members of the AASC shall have a non-renewable term of 3 years.
D. The chairman should have been or presently a senior practitioner in public
accountancy.

13. The following sectors represented by the PICPA to the membership of AASC have one
representative, except
A. Government
B. Commerce and industry
C. Public practice
D. Academe

14. A person is not deemed to be engaged in professional accounting practice if

A. Her merely holds himself out as skilled in the science and practice of accounting and qualified
to render services as a CPA.
B. He merely offers to render services as a CPA to the public, but does not actually render such
services.
C. He offers or renders bookkeeping services to more than one client.
D. He installs and revises accounting systems for more than one client.

15. Practice in Public Accountancy shall constitute in a person

A. Involved in decision making requiring professional knowledge in the science of accounting, or
when such employment or position requires that the holder thereof must be a certified public
accountant.
B. In an educational institution which involve teaching of accounting, auditing, management
advisory services, finance, business law, taxation, and other technically related subjects.
C. Who holds, or is appointed to, a position in an accounting professional group in government
or in a government owned and/or controlled corporation, including those performing
proprietary functions, where decision making requires professional knowledge in the science
of accounting,
D. Holding out himself/herself as one skilled in the knowledge, science and practice of
accounting, and as a qualified person to render professional services as a certified
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 public accountant; or offering or rendering, or both, to more than one client on a fee
basis or otherwise.

16. Any position in any business or company in the private sector which requires supervising the
recording of financial transactions, preparation of financial statements, coordinating with the
external auditors for the audit of such financial statements and other related functions shall be
occupied only by a duly registered CPA. Provided (choose the incorrect one)
A. That the business or company where the above position exists has a paid-up capital of at
least P5,000,000 and/or an annual revenue of at least P10,000,000.
B. The above provision shall apply only to persons to be employed after the effectivity of the
Implementing Rules and Regulations of RA 9298.
C. The above provision shall not result to deprivation of the employment of incumbents to the
position.
D. None of the above.

17. Advertising, as defined in the Code of Ethics, means

A. The communication to the public of facts about a professional accountant which are not
designed for the deliberate promotion of that professional accountant.
B. The approach to a potential client for the purpose of offering professional services.
C. The communication to the public of information as to the services or skills provided
by professional accountants in public practice with a view to procuring professional
business.
D. Any of the above.

18. Existing accountant, as defined in the Code of Ethics, means

A. A professional accountant employed in industry, commerce, the public sector or education.
B. A professional accountant in public practice currently holding an audit appointment
or carrying out accounting, taxation, consulting or similar professional services for a
client.
C. Those persons who hold a valid certificate issued by the Board of Accountancy.
D. A sole proprietor, or each partner or person occupying a position similar to that of a partner
and each staff in a practice providing professional services to a client irrespective of their
functional classification (e.g., audit, tax or consulting) and professional accountants in a
practice having managerial responsibilities.

19. The term professional accountant in public practice includes the following, except
A. A sole proprietor providing professional services to a client.
B. Each partner or person occupying a position similar to that of a partner staff in a practice
providing professional services to a client.
C. Professional accountants employed in the public sector having managerial
responsibilities.
D. A firm of professional accountants in public practice.

20. The term receiving accountant includes the following, except

A. A professional accountant in public practice to whom the existing accountant has referred tax
engagement.
B. A professional accountant in public practice to whom the client of the existing accountant has
referred audit engagement.
C. A professional accountant in public practice who is consulted in order to meet the needs of
the client.
D. A professional accountant in public practice currently holding an audit appointment
or carrying out accounting, taxation, consulting or similar professional services for a
client.

21. Related entity is an entity that has any of the following relationships with the client, except
A. An entity that has direct or indirect control over the client provided the client is material to
such entity.
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 B. An entity with a direct financial interest in the client even though such entity has no
significant influence over the client provided the interest in the client is material to
such entity.
C. An entity over which the client has direct or indirect control.
D. An entity which is under common control with the client (referred to as a “sister entity”)
provided the sister entity and the client are both material to the entity that controls both the
client and sister entity.

22. The Code recognizes that the objectives of the accountancy profession are to work to the highest
standards of professionalism, to attain the highest levels of performance and generally to meet the
public interest requirement set out above. These objectives require four basic needs to be met
including the following, except
A. Credibility
B. Quality of Services
C. Professionalism
D. Integrity

23. In order to achieve the objectives of the accountancy profession, professional accountants have to
observe a number of prerequisites or fundamental principles. The fundamental principles include
the following, except
A. Objectivity
B. Professional Competence and due Care
C. Technical Standards
D. Confidence

24. The principle of professional behavior requires a professional accountant to

A. Be straightforward and honest in performing professional services.
B. Be fair and should not allow prejudice or bias, conflict of interest or influence of others to
override objectivity.
C. Perform professional services with due care, competence and diligence.
D. Act in a manner consistent with the good reputation of the profession and refrain from
any conduct which might bring discredit to the profession.

25. Prior to the acceptance of an audit engagement with a client who has terminated the services of the
predecessor auditor, the CPA should
A. Contact the predecessor auditor without advising the prospective client and request a
complete report of the circumstance leading to the termination with the understanding that all
information disclosed will be kept confidential.
B. Accept the engagement without contacting the predecessor auditor since the CPA can include
audit procedures to verify the reason given by the client for the termination.
C. Not communicate with the predecessor auditor because this would in effect be asking the
auditor to violate the confidential relationship between auditor and client.
D. Advise the client of the intention to contact the predecessor auditor and request
permission for the contact.
PROBLEM 1
In connection with your examination, the Pound Company presented to you the following information
regarding its Cash in Bank account for the month of December, 2015:
a) Balances per bank statements: November 30, P107,800, and December 31,P115,200.
b) Balances of cash in bank account in company’s books: November 30, P82,725, and December
31, P113,400.
c) Total receipts per books were P1,110,950 of which P6,050 was paid in cash to a creditor on
December 24.
d) Total charges in the bank statement during December were P1,094,850.
e) Undeposited receipts were: November 30, P45,300 and December 31, P50,600.
f) Outstanding checks were: November 30, P13,375, and December 31, P9,650, of which a check
for P2,500 was certified by the bank on December 26.
g) NSF checks returned, recorded as reduction of cash receipts, were:
 Returned by bank on December, recorded also in December, P5,200.
 Returned by bank on December but recorded in January, P4,300

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 h) Collections by bank not recorded by Company were P60,750 in November and P58,200 in
December.
i) Bank service charges not entered in company’s books were: November 30, P3,750and
December 31, P2,100.
j) A check for P4,750 of Found Company was charged to Pound Company in error.
k) A check drawn for P4,200 was erroneously entered in the books as P2,400.

Required: Based on the above and the result of your audit, answer the following:
26. How much is the adjusted cash balance as of November 30, 2015?
A. P107,800 b. P139,725 c. P75,875 d. P137,225

27. How much is the adjusted book receipts for December, 2014?
A. P1,102,350 b. P1,113,600 c. P1,056,950 d. P1,108,400

28. How much is the adjusted book disbursements for December, 2014?
A. P1,084,725 b. P1,078,675 c. P1,089,925 d. P1,084,725

29. How much is the adjusted cash balance as of December 31, 2014?
A. P158,650 b. P153,900 c. P165,200 d. P163,400

30. How much is the cash shortage of December 31, 2014?

A. P1,800 b. P9,500 c. P4,750 d. P0

PROBLEM 2
You are engaged in the regular annual examination of the accounts and records of Pateros Co. for the
year ended December 31, 2015. To reduce the workload at year end, the company, upon your
recommendation, took its annual physical inventory on November 30, 2015. You observed the taking
of the inventory and made tests of the inventory count and the inventory records. The company’s
inventory account, which includes raw materials and work-in-process is on perpetual basis. Inventories
are valued at cost, first-in, first-out method. There is no finished goods inventory. The company’s
physical inventory revealed that the book inventory of P1,695,960 was understated by P84,000. To avoid
delay in completing its monthly financial statements, the company decided not to adjust the book
inventory until year-end except for obsolete inventory items. Your examination disclosed the following
information regarding the November 30 inventory:
a. Pricing tests showed that the physical inventory was overstated by P61,600.
b. An understatement of the physical inventory by P4,200 due to errors in footings and extensions.
c. Direct labor included in the inventory amounted to P280,000. Overhead was included at the rate
of 200% of direct labor. You have ascertained that the amount of direct labor was correct and that
the overhead rate was proper.
d. The physical inventory included obsolete materials with a total cost of P7,000. During December,
the obsolete materials were written off by a charge to cost of sales.

Your audit also disclosed the following information about the December 31 inventory:
a. Total debits to the following accounts during December were: Cost of sales P1,920,800
Direct labor 338,800 Purchases 691,600
b. The cost of sales of P1,920,800 included direct labor of P386,400.

QUESTIONS: Based on the above and the result of your audit, determine the following:
31. Adjusted amount of physical inventory at November 30, 2015
A. P1,715,560  b. P1,845,760 c. P1,631,560  d. P1,722,5602.

32. Adjusted amount of inventory at December 31, 2015

A. P1,509,760  b. P1,502,760 c. P1,516,760  d. P1,425,760

33. Cost of materials on hand, and materials included in work in process as of December 31, 2015
A. P819,560  b. P728,560 c. P812,560  d. P942,7604.

34. The amount of direct labor included in work in process as of December 31, 2015
A. P618,800  b. P338,800 c. P232,400  d. P386,400

35. The amount of factory overhead included in work in process as of December 31, 2015
A. P 772,800  b. P464,800 c. P1,237,600  d. P777,600

PROBLEM 3
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 On January 1, 2015, WIZARDS CORPORATION issued 2,000 of its 5-year, P1,000 face value 11%
bonds date January 1 at an effective annual interest rate (yield) of 9%. Interest is payable each
December 31. Wizards uses the effective interest method of amortization. On December 31, 2016. The
2,000 bonds were extinguished early through acquisition on the Open Market by Wizard for P1,980,000
plus accrued interest. On July 1, 2015, Wizards issued 5,000 of its P1,000 face value, 10% convertible
bonds at pat. Interest is payable every June 30 and December 31. On the date of issue, the prevailing
market interest rate for similar debt without the conversion option is 12%. On July 1, 2016, an investor in
Wizards convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Wizards common
stock, which had a fair value of P105 and a par value of P1 at the date of conversion.

Based on the above and the result of your audit, determine the following: (Round off present value
factors to four decimal places.)
36. The issue price on the 2,000 5-year, P1,000 face value bonds in January 1, 2015 is
a. P2,155.500 b. P2,000,000 c. 1,844,400 d. 2,147,800

37. The carrying value of the 2,000 5-year, P1,000 face value bonds on December 31, 2015 is
a. 1,898,400 b. 2,129,500 c. 2,000,000 d. 2,121,100

38. The gain on early retirement of bonds on December 31, 2016 is

a. P20,000 b. 112,000 c. 121,200 d. 0

39. The carrying value of the 5,000 6 year, P1,000 face value bonds on December 31, 2015 is
a. P4,605,800 b. 5,000,000 c. 4,732.875 d. 4,615,400

40. The conversion of the 1,500 6-years, P1,000 face value bonds on July 1, 2016 will increase APIC
by
a. P1,485,000 b. 1,374,000 c. 1,415.054 d. P1,377,697

PROBLEM 4
In connection with your audit of the Josef Mining Corporation for the year ended December 31, 2015,
you noted that the company purchased for P10,400,000 mining property estimated to contain 8,000,000
tons of ore. The residual value of the property is P800,000. Building used in mine operations costs
P800,000 and have estimated life of fifteen years with no residual value. Mine machinery costs
P1,600,000 with an estimated residual value P320,000 after its physical life of 4 years.

Following is the summary of the company’s operations for first year of operations.
Tons mined 800,000 tons
Tons sold 640,000 tons
Unit selling price per ton P4.40
Direct labor 640,000
Miscellaneous mining overhead 128,000
Operating expenses (excluding depreciation) 576,000

Inventories are valued on a first-in, first-out basis. Depreciation on the building is to be allocated as
follows: 20% to operating expenses, 80% to production. Depreciation on machinery is chargeable to
production.

QUESTIONS: Based on the above and the result of your audit, answer the following: (Disregard tax
implications)
41. How much is the depletion for 2015?
a. P768,000 b. P960,000 c. P192,000 d. P1,040,000

42. Total inventoriable depreciation for 2015?

a. P400,000 b. P362,667 c. P384,000 d. P0

43. How much is the Inventory as of December 31, 2015?

a. P438,400 b. P422,400 c. P425,600 d. P418,133

44. How much is the cost of sales for the year ended December 31, 2015?
a. P1,689,600 b. P1,753,600 c. P1,702,400 d. P1,672,533
45. How much is the maximum amount that may be declared as dividends at the end of the company’s
first year of operations?
a. P1,494,400 b. P1,289,600 c. P1,302,400 d. P1,319,467

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PROBLEM 5
You are conducting an audit of the PRTC Company for the year ended December 31, 2012. The internal
control procedures surrounding cash transactions were not adequate. The bookkeeper-cashier handles
cash receipts, maintains accounting records, and prepares the monthly bank reconciliations. The
bookkeeper-cashier prepared the following reconciliation at the end of the year:

Balance per bank statement  P350,000
Add: Deposit in transit  P175,250
Note collected by bank  15,000  190,250
Total 540,250
Less outstanding checks  246,750
Balance per general ledger  P293,500

In the process of your audit, you gathered the following:

 At December 31, 2012, the bank statement and general ledger showed balances of P350,000
and P293,500,respectively.
 The cut-off bank statement showed a bank charge on January 2, 2013 for P30,000 representing
correction of an erroneous bank credit.
 Included in the list of outstanding checks were the following:
a. A check payable to a supplier, dated December 29, 2012, in the amount of P14,750,
released on January 5, 2013.
b. A check representing advance payment to a supplier in the amount of P37,210, the date
of which is January 4, 2013, and released in December, 2012.
 On December 31, 2012, the company received and recorded customer’s postdated check
amounting to P50,000. 

QUESTIONS: Based on the above and the result of your audit, answer the following:

46. The adjusted deposit in transit as at December 31, 2012 is

A. P175,250  b. P225,250 c. P125,250  d. P125,000

47. The adjusted outstanding checks as at December 31, 2012 is

A. P298,710  b. P209,540 c. P232,000  d. P194,790

48. The adjusted cash to be presented in the statement of financial position at December 31, 2012 is
A. P235,460  b.  P265,460 c.  P250,460  d.  P310,460

49. The cash shortage as of December 31, 2012 is

A. P45,000  b.  P60,000 c.  P58,040  d.  P 8,040

50.  The net adjustment to the cash account as of December 31, 2012 is
A. P43,040  b. P58,040 c. P60,000  d. P45,000

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