FAR

1. Which of the following are true?

I. The main purpose of financial reporting is to provide information aimed at running a business more efficiently
Il. The principal function of financial accounts is to provide Information to parties external to a business
Ill. The term “reporting entity” may be used to describe a group of companies
a. I and Il only c. Il and Ill only
b. I and III only d. I, II, and III
2. Which of the following is not a primary information need for the 'investor' user group of financial
statements?
a. Assessment of repayment ability of an entity
b. Measuring performance, risk and return
c. Taking decisions regarding holding investments
d. Taking buy / sell decisions
3. According to the Conceptual Framework, which of the following, Is the underlying assumption
relating to financial statements?
a. The accounts have been prepared on an accrual basis
b. Users are assumed to have sufficient knowledge to be able to understand the financial statements
c. The business is expected to continue in operation for the foreseeable future
d. The information is free from material error or bias
4. Which one of the following can the accounting equation can be rewritten as?
a. Assets + profit — drawings — liabilities = closing liabilities
b. Assets — liabilities — drawings = opening capital + profit
c. Assets — liabilities — opening capital+ drawings = profit
d. Assets — profit — drawings — capital introduced —closing capital — liabilities
5. The profit made by a business in 2017 was P35,400. The proprietor injected new capital of PIO,200
during the year and withdrew a monthly salary of P500. If the net assets at the end of 2017 were
P95,1OO, what was the proprietor's capital at the beginning of the year?
a. P50,000 c. P63,900
b. P55,500 d. P134,700
6. In accordance with PAS 1 Presentation of Financial Statements, which one of the following
statements is correct?
a. Assets and liabilities must be presented broadly in the order of their liquidity.
b. Assets and liabilities can be offset If they result from the same transaction or event.
c. Intangible assets must be presented separately in the statement of financial position.
d. Even if less than 12 months, the length of an entity's operating cycle must be disclosed.
7. Sherwin Company reported assets totaling P870,000. The following information relates to those
assets:
a. A rival company recently offered to give a P100,000 signing bonus to the head of Sherwin's fabrication
department if she would leave Sherwin and join the rival company. She declined. Sherwin has consequently
recorded a long- term asset, "Employees Under Contract," for P100,000.
b. Sherwin purchased a patent from a small research firm for P75,000. Subsequent research has shown that
the patented technology doesn't work as well as originally thought and the technology actually has no
economic use. Sherwin reports the patent at its amortized cost of P60,000.
c. An independent appraiser recently set Sherwin's market value at P500,000. This exceeded the book value of
equity by P120,000. Accordingly, Sherwin recorded Goodwill totaling P120,000.
d. Near the end of the year, Sherwin paid P30,000 for the exclusive right to market electronic equipment to be
imported from abroad. Sherwin reported this as a P30,000 "intangible asset."
e. Sherwin placed an advertisement for its products in a local newspaper. The newspaper advertisement cost
the entity P20,000 which the entity paid on December 1. Although the advertisement will only appear in the
December 31 newspaper, the entity expects that the advertisement will continue to generate additional sales of
its products in January next year. Sherwin reported this as a P20,000 "Intangible Asset."
f. When Sherwin started business three years ago, it was required to deposit P5,000 with the local electric
utility. The deposit is refundable if Sherwin cancels its electric service. Sherwin earns no interest on the
deposit. The deposit is recorded as an "Other Long-Term Asset."
After considering the items above, What Should be the total Of Sherwin's reported assets?
a. 590,000 c. P565,000
b. 570,000 d. P535,000

8. Jerica Company reported liabilities totaling the following information relates to those liabilities.
a. Jerico reported a P100,000 bank loan payable. However, intends to repay this loan in January of the
following year.
b. Jerico has reported a P40,000 liability for the estimated cost of future warranty repairs based on product
sales for the past year.
c. Jerico is being sued for P350,000 by a disgruntled employee. Jerico's attorney thinks that it is possible that
Jerico will lose the case. Jerico has not yet recorded any liability for this potential loss.
d. Jerico receives consulting services from a CPA. Expected services by the CPA for the corning year will cost
P35,000. No liability has been recorded.
e. Jerico has reached an agreement with a major customer. Jerico expects to provide services totaling
P400,000 over the coming three years. The customer has already paid Jerico P100,000. No liability has been
recorded.
After considering these Items, what should be the total of Jerico's reported liabilities?
a. P1,230,000 c. P1,290,000
b. P1,630,000 d. P1,330,000

9. Art Inc. furnishes you with the following list of accounts:

Accounts payable P66,000
Accounts receivable 40,000
Accumulated depreciation 44,000
Advances to sales persons 10,000
Advertising Expense 72,000
Allowance for Bad Debts 10,000
Bonds payable 80,000
Cash 22,000
Certificates of deposit 16,000
Share capital, (par) 100,000
Deferred income tax liability 46,000
Equipment 215,500
Inventory 55,000
 Investment in X Co. shares (20% of outstanding shares owned) 76,500
Investment in Y Co. shares (trading securities) 21,000
Share premium 42,500
Premium on Bonds Payable 6,000
Prepaid Insurance 6,000
Rent revenue 37,000
Rent revenue received in advance (4 months) 12,000
Retained earnings 97,500
Taxes payable 10,000
Tools 52,000
The company’s working capital is
a. P72,000 c. P62,000
b. P66,000 d. P46,000

10. In accordance with PAS 1 Presentation of Financial Statements, which one of the following
statements in relation to the statement of profit or loss and other comprehensive income is correct?
a. A reclassification adjustment is made to other comprehensive income when a revalued item of plant and
equipment is sold.
b. Items of income and expense that are outside the ordinary operations of an entity are included in other
comprehensive income.
c. Where an entity has an investment in an associate, the profit of the entity would include a line item share of
profit or loss and other comprehensive income of associate'.
d. The components of other comprehensive income may be presented in the statement of profit or loss and
other comprehensive income before tax with an aggregate amount of tax for all components.

11. The following account balances appear in the trial balance of Jet's Garment Manufacturing company as of
December 31, 2017.
Raw materials inventory, January 1 Finished goods inventory, December 31
Raw materials inventory, December 31 Sales
Direct labor Selling expenses
Light and power PI 15,000
Freight in and handling 160,000
Factory supplies used 180,000
Insurance - factory 30,000
Goods in process inventory - January 1 15,000
Goods in process inventory - Dec. 31 25,000
Fuel, oil, and lubricants 8,000
Taxes and licenses - factory 140,000
Repairs and maintenance - factory 132,000
Depreciation - plant and equipment 23,000
Depreciation - office equipment 11,000
Finished goods inventory, January 7,000
35,000 110,000
9,000 933,000
137,000 105,000

Administrative expenses 50,000

Sales returns and allowances 7,000
Indirect labor 60,000
Interest expense 18,000
Purchases of raw materials 500,000
Purchase returns and allowances 10,000
SSS and Medicare premiums - factory 22,000
Retained earnings, January 1 135,000
Cost of goods sold was
a. P905,000 c. P869,000
b. 896,000 d. P874,000

12. Ronald Inc. is a small publicly listed company whose activities consist of an engineering branch (also
acting as the head office) and a paint shop branch producing specialized industrial coatings. During the year
ended December 311 2017, the paint shop branch became unprofitable and the directors made the decision to
close down the branch. The employees have been told of the closure and those employees who cannot be
transferred to the engineering branch have been given redundancy/retrenchment notices. In addition, the
directors have written to all of the paint shop's customers informing them that no further orders will be accepted
and the branch will formally close on January 31 2018. The estimated direct costs of the closure, which have
not yet been provided for, are:
Employee related costs P10,000,0000
Losses on disposal of branch net assets 15,000,000
The paint shop's revenues and operating expenses for 2017, respectively, were 40,000,000 and 60,000,000. In
addition, it is expected that the operating losses of the paint shop during January 2018 will be 2,000,000.
Assuming a 35% tax rate, how much will be reported as loss from discontinued operations in Ronald's 2017
income statement?
a. P13,000,000 c. P30,550,000
b. P19,500,000 d. P29,250,000

13. What amount of comprehensive income should John Corporation report on Its statement of profit or loss
and other comprehensive income given the following net of tax figures that represent changes during a period?
Remeasurement loss on defined benefit obligation (P3,000)
Unrealized gain on available-for-sale securities 15,000
Reclassification adjustment, for securities gain included in net income (2,500)
Share warrants outstanding 4,000
Net income 77,000
a. P86,500 c. P89,500
b. P89,000 d. P90,500
14. In the year ended 31 May 2017, Hanne Co purchased non-current assets with a cost of P140,000,
financing them partly with a new loan of P120,000. Hanne Co also disposed of non-current assets with a
carrying value of P50,000 making a loss of P3,000. Cash of P18,000 was received from the disposal of
investments during the year. What should be Hanne Co's net cash flow from investing activities
according to PAS 7 Statement of cash flows?
a. P45.OOO c. P69,000
b. P75,000 d. P48,000

15. An analyst compiled the information for Dominic, Inc. for the year ended December 31, 2017:

 Net income was P1,700,000

 Depreciation expense was P400,000
 Interest paid was P200,000
 Income taxes paid were P100,000
 Common stock was sold for P 200,000.
 Preferred stock (eight percent annum dividend) sold at par value of P250,000.
 Preferred stock dividends or P20,000 were paid.
 Equipment With a book value Of P100,000 was sold for P200.000.
Using the indirect method, what was Dominic, Inc.'s net cash flow from operating activities for the year
ended December 31, 2017.
a. P1,630,000 c. P1,900,00
b. P1,700,000 d. P2,000,000

16. Joshuarey Co. provided the following information on selected transactions during 2017:
Purchase of land by issuing bonds P250,000
Proceeds from issuing bonds 500,000
Purchases of inventory 950,000
Purchases Of treasury shares 150,000
Loans made to affiliated corporations 350,000
Dividends paid to preference Shareholders 100,000
Proceeds from issuing preference share 400,000
Proceeds from sale of equipment 50,000
The net cash provided by financing activities during 2017 is
a. P550,000 c. P800,000
b. P650,000 d. P900,000
17. Eddielyn Co. had the following balances at December 31, 2017:
Cash in checking account P 35,000
Cash In money market account 75,000
Treasury bill, purchased 11/1/2017, maturing 350,000
1/31/2018
Treasury bill, purchased 12/1/2017, maturing
400,000
3/31/2018
What amount should Eddielyn report as cash and cash equivalents in its December 31, 2017 statement
of financial position?
a. P110,000 c. P460,000
b. P385,0000 d. P860,000
18. Your analysis of the accounts receivable of Mark Company indicates the following:
Accounts receivable, January 1 P 300,000
Allowance for doubtful accounts, January 1 40,000
Credit sales during the year 1,200,000
Cash collections during the year 1,100,000
Accounts receivable written off during the year 20,000
In prior years, Mark's bad debt expense has averaged 2% of credit sales. On December 31, what would be the
amount of Mark's accounts receivable, net of any allowance for doubtful accounts, assuming that Mark uses
the credit sales method to estimating bad debt expense?
a.P336,000 c. P360,000
b.P358,000 d. P400,000

19. On January 1, 2012, Christian Company sold a machine with a carrying amount of P300,000 and accepted
in exchange a promissory note with a face value of P500,000, a due date of December 31, 2021, and a stated
rate of 4%, with interest receivable at the end of each year. The fair value of the machine is not readily
determinable and the note is not readily marketable. Under the circumstances, the note is considered to have
an appropriate imputed rate of interest of 8%. The interest income to be recognized in 2017 is
a. P20,000 c. P32,604
b. P29,264 d. P33,612

20. On January 1, 2016, Jaybee Corporation purchased Plt000,000 10% bonds for PI ,051,510 (including
broker's commission of P20,000). Interest is payable annually every December 31. The bonds mature on
December 31, 2018. The bonds are classified as available-for-sale. The prevailing market rate for the bonds is
9% at December 31, 2016. On December 31, 2017, Jaybee sold the bonds at 105. (Round off present value
factors to four decimal places)
How much is the gain on sale of bonds on December 31, 2017?
a. P31,510 c. P18,490
b. P32,390 d. P1,510

21. ReyJey Ltd (Reyjay) measures its investment in Blue Chip Ltd (Blue Chip) shares at fair value. Blue Chip
shares are listed and actively traded on the stock exchange. Which one of the following valuations Should
Reyjay use to measure its investment in shares in Blue Chip in its financial statements at 30 June 2017?
a. An estimate derived from a model that uses Reyjay's estimates of Blue Chip's future profits and required rate
of return.
b. The average price of Blue Chip shares on the stock market from 1 June 2017 to 30 June 2017
c. An estimate derived from a model that uses observable Industry growth rates and past cash flows
d. The closing price of Blue Chip shares on the stock market at 30 June 2017

22. In January 2017, Daniel Corporation acquired 20 percent of the outstanding ordinary shares of Investee
company for P1,120,000. This investment gave Daniel the ability to exercise significant influence over
Investee. The book value of the acquired shares was P840,000. The excess of cost over book value was
attributed to an identifiable intangible asset that was undervalued on Investee's balance sheet and that had a
remaining useful life Of ten years. For the year ended December 31, 2017, Investee reported net income of
P252,000 and paid cash dividends of P56,000 on its ordinary shares. What is the proper carrying value of
Daniel's investment in Investee at December 31, 2017?
a. P1,080,800 c. P1,131,200
b. P1,092,000 d. P1,181,600

23. During 2017, Jude co. pays an insurance premium of P31,800 on a P900,000 life insurance policy covering
the president. The cash surrender value of the policy will increase from P165,000 to P175,200 during 2017.
The entity received dividends of P3,300 from the insurance company during 2017. The president died half-way
through 2017. The policy indicates that the cash surrender value is P170,100 at that date and 50% of the
premium is refunded. The life insurance expense for the year 2017 is
a. P18,300 c. P5,700
b. P 7,500 d. P2,400
24. On 1 January 2017, an entity accepted an order for 7,000 custom-made corporate gifts.
On 3 January 2017 the entity purchased raw materials to be consumed in the production process for
P550,000, including P50,000 refundable purchase taxes. The purchase price was funded by raising a loan of
P555,000 (including P5,000 loan-raising fees). The loan is secured by the inventories.
During January 2017 the entity designed the corporate gifts for the customer. Design costs included:
• Cost of external designer = P7,000
• Labor = P3,000
During February 2017, the entity's production team developed the manufacturing technique and made further
modifications necessary to bring the inventories to the conditions specified in the agreement. The following
costs were incurred in the testing phase:
• Material, net of P3,000 recovered from the sale of the scrapped output = P21,000
• Labor = PI 1,000
• Depreciation of plant used to perform the modifications = P5,000
During February 2017 the entity incurred the following additional costs in manufacturing the customized
corporate gifts:
• Consumable stores = P55,000
• Labor = P65,000
• Depreciation of plant used to perform the modifications = P15,000
The customized corporate gifts were ready for sale on 1 March 2017. No abnormal wastage occurred in the
development and manufacture of the corporate gifts.
What is the cost of the inventory?
a. P682,000 c. P632,000
b. P635,000 d. P585,000
25. The following information has been extracted from the records of Katrina Corporation about one of its
products.
Date No. of units Unit cost
Jan. 1 Beginning balance 1,600 P14.00
Jan. 6 Purchased 600 14.10
Feb. S Sold @ P24.00 per unit 2000
Mar. 19 Purchased 2,200 14.70
Mar. 24 Purchase returns 160 14.70
Apr. 10 sold @ P24.20 per unit 1,400
June 22Purchased 16,800 15.00
July 31 sold @ P26.50 per unit 3,600
Aug. 4 Sales returns @ P26.50 per unit 40
Sept. 4 sold @ P27.00 per unit 7,000
Nov, 15Purchased 1,000 16.00
Dec. 28Sold @ P30.00 per unit 6,200
Compute for the cost of ending inventory under moving average method. (Round unit costs to two
decimal places.)
a. P28,241 C. P28,421
b. P28,050 d. P28,500

26. The following data were taken from the books of Roi. Co. for the current year:
From cash records:
Cash purchases P30,000
Payments to trade creditors for credit purchases 302,600
From balance sheets:
Accounts payable
January 1 37,500
December 31 43,300
Merchandise inventory, January 1 12,800
From other records:
Purchase returns and allowances 7,500
Cost of goods for the year 335,000
The merchandise inventory at the end of the year is
a. P16,200 c. P12,000
b. P13,800 d. P23,700

27. Charlie Company uses the average cost retail method to estimate its inventory. Data
Cost Retail
Inventory, January 1 P2,000,000 P3,000,000
Purchases 10,600,000 14,000,000
Net markups 1,600,000
Net markdowns 600,000
Sales 12,000,000
Estimated normal shoplifting losses 400,000
Estimated normal shrinkage is 5% of sales
Charlie's cost of goods sold for the year ended December 31, 2017 is
a. P8,680,000 c. P7,700,000
b. P9,100,000 d. P8,400,000

28. Tristine Dairy produces milk to sell to local and national ice cream producers. Tristine Dairy began
operations on January 1, 2017 by purchasing 840 milk cows for The company controller had the following
information available at year end relating to the cows:
Carrying value, January 1, 2017 P1,176,000
Increase in fair value due to growth and price changes 365,000
Decrease in fair value due to harvest 42,000
Milk harvested during 2017 but not yet sold 54,000
At December 31, 2017, what is the value of the milking cows on Tristine Dairy's statement of financial
position?
a. P1,583,000 c. P1,499,000
b. P1,553,000 d. P1,445,000
29. In January, Jomarc Corporation entered into a contract to acquire a new machine for its factory. The
machine, which had a cash price of P300,000, was paid for as follows:
Down payment P 30,000
Note payable in 10 equal monthly installments 240,000
1,000 ordinary shares of Jomarc with an agreed
50,000
value of P50 per share
P320,000
Total
Prior to the machine's use, installation costs of P8,000 were incurred. The machine has an estimated useful life
of ten years and an estimated salvage value of P10,000, What should Jomarc record as depreciation expense
for the first year under the straight-line method?
a. P31,800 c. P30,000
b. P31,000 d. P29,800

30. Michael Corporation has a machine costing P480,000, with an annual depreciation of P96,000, and has
accumulated depreciation of P240,000 on December 31, 2016. On April 1, 2017, when the machine has a fair
value of P192,000, it Is exchanged for a similar machine with a fair value of P576,000 and the proper amount
of cash is paid. The loss to be recognized on exchange Is
a. P48,000 c. P168,000
b. P24,000 d. P 0
 ADVANCE FINANCIAL ACCOUNTING AND REPORTING (AFAR)
On January 1, 2017, AA and BB formed a partnership by contributing cash of P50,000 and P40,000,
respectively. They have agreed to give AA 60% interest in capital and Be 50% interest in profit and losses.
Since January 1, 2017, the following events have occurred for the partnership:
Event 1: on April 1, 2017, after charging the old partners• capital their share from a of P15,000 for the 1 st
quarter, CC was taken in as a partner by purchasing partnership interest. proportionately from AA and BB as
aqreed among partners. CC paid a total of P12,000 for the purchased interest and was given a 20% interest in
profits. The old partners have agreed to maintain their old profit and loss ratios.
Event 2: On July 1, 2017. to improve sales and profitability, the partnership merged with another firm owned by
DD, after crediting the partners for a profit of P100,00 for the quarter. DD's net assets had a fair value of
P30,000 when contributed and DD was given a 30% interest in capital and in profits. The old partners have
agreed to maintain their old profit and loss ratios.
Event 3: On October I, 2017, BB, whose family was to immigrate to Vancouver, Canada, withdrew from the
partnership. The partnership recognized a profit cf PI 5,000 for the 3"' quarter. It was agreed that the
partnership net assets were fairly valued at that date and thus no revaluation had taken place upon dB's
withdrawal. BB was paid P30,000 from the partnership cash.
Event 4: On November IS, 2017, DD. a CPA-MBA gave notice of withdrawing from the partnership by the year-
end. He was appointed a member of the Board of Accountancy and had to devote his time fully to this exciting
new endeavor. The partners have decided to liquidate the partnership instead on December 31, 2017. The
partnership recognized a profit of P20,000 for the 4 th quarter. The loss on realization of assets was P8,000 and
liquidation paid were P4,000.
1. How much is the capital of AA upon formation of the partnership on January I, 2017?
a. P 50,000 c. P 46,000
b. P 54,000
d. P 40,000
2. How much is the capital of CC upon his admission by purchased interest on April 1, 2017?
a. P 18,000 c. P 12,000
b. P 15,000
d. P 16,000
3. How much cash will BB receive on April 1, 2017 upon the admission of CC by purchase of interest?
a. P 7,800 c. P 4,200
b. P 9,300
d. P 2,700
4. What will be the capital balance of BB upon DD's admission by investment on July 1, 2017?
a. P 39,400 c. P 25,000
b. P 16,100
d. P 34,500
5. What will be the capital balance of DD after the retirement of BB on October 1, 2017?
a. P 38,667 c. P 43,289
b. P 18,044 d. P 29,200
5. What will be the final cash distribution to the partners upon liquidation on December 31, 2017?
a. AA, P46,400, CC, P19,600 and DD, P42,000
b. AA, P40,600, CC, P16,900 and DD P42,000
c. AA, P44,600, CC, P16,900 and DD, P42,000
d. AA, P46,400, CC, P19,600 and DD, P24,000
7. The admission of a new partner under the bonus method will result in a bonus to
a. the old partners only.
b. the new partner only.
c. either the new partner or the old partners, but not both.
d. none of the above.
on January 1, 2017, Franchisee BB entered into a franchise agreement with Franchisor AA to sell their
products. The agreement provides for an initial franchise fee of payable as follows:
Cash down payment P1,750,000
Balance, 12% promissory notes 4,500,000
Total 6,250,000
The note is to be paid in four equal annual payments every December 31, starting on December 31, 2017. The
agreement further provides that BB must pay a continuing fee equal to 5% of its monthly gross sales. on
August 31, AA completed the initial services required in the contract at a cost of and also incurred indirect costs
of P380,000. BB commenced business operations on September 1, 2017. Gross sales by BB from September
1 to December 31, 2017 was P631,300. The first installment payment was made on due date.
8. How much is AA's realized gross profit for 2017 assuming the collectability of the note is not reasonably
assured.
a. P1,987,500 c. P 1,262,700
b. P 1,155,000 d. P1,551,000
9. How much is the net income for 2017 if the collectability of the note is reasonably assured?
a. P 4,316,565 c. P2,379,065
b. 4,226,565 d. P3,729,065

10. It is the one-off payment made by the franchisee to the franchisor to obtain the franchise right.
a. Initial franchise fee c. Fixer’s fee
b. Continuing franchise fee d. Any of the choices

The Statement of Affairs of Failures, Inc. Shows the following balances:

Estimated gains on realization of assets P 945.000
Retained Earnings, deficit 600,000
Estimated losses on realization of assets 1,945,000
Capital Stock 1,500,000
Contingent assets 750,000
Contingent liabilities 225,000
Current assets 100,000
liabilities 400,000
Other assets 1,200,000
11. Determine the estimated pro-rate payment on the peso to stockholders in the event of Corporate
liquidation.
a. 0.75 c. P0.43
b. P0.30 d. PO.70

Alberta Textile Corporation has a Single branch in Bulacan. On March 1, 2017, the home office accounting
records included a Branch Inventory Allowance: Bulacan Branch ledger account with a credit balance of
P32,000. During March, merchandise costing P36,000 was shipped to Bulacan Branch and billed at a price
representing a 40% markup on billed price. On March 31. the branch prepared an income statement indicating
a net loss of P11,500 for March and ending inventories at billed prices of P25,000.
12. Calculate the Bulacan branch net income or (net loss) insofar as the Home Office is concerned.
a. (P11,500) c. P 30,500
b. P34,500 d. P 27,757
Stevens Company began operations on August 1, 2017. The following information are extracted from its
records at December
Cost of installment sales P1,090,750
Cost of regular sales 1,050,000
Installment accounts receivable 656,250
Accounts receivable 735,000
Operating expenses (70% of the realized gross ?
profit)
Mark-up on regular sales is 33-1/3% of sales, while mark-up on installment sales is 40% of cost.
13. The net income to be reported by Stevens for 2017 is:
a. P267,750 c. 232,140
b. P341,250 d. 339,990
14. The realization of income on installment sales transactions involves
a. Recognition of the difference between the cash collected on installment sales and the cash expenses
incurred
b. Deferring the net income related to installment sales and recognizing the income as cash is collected
c. Deferring gross profit while recognizing operating or financial expenses in the period incurred
d. Deferring gross profit and all additional expenses related to installment sales until cash is collected

GREEN BERET, INC. is very financially distressed and the Securities and Exchange Commission ordered its
promat liquidation.
The company has the following assets at this point:
Book value Fair value
Current assets P64,000 P28,000
Land 80,000 72,000
Buildings 56,000 61,600
Equipment 24,000 26,400
The company's liabilities at the same date are as follows:
Income taxes P 6,400
Notes payable, secured by land 96,000
Accounts payable 68,000
Salaries payable 4,800
Bonds payable 56,000
Administrative expenses for liquidation 16,000
15. Calculate the estimated net amount available for the payment of non-priority claims
a. P 88,800 c. P 86,400
b. P 100,000 d. P109,600
16. Calculate the amount of estimated payment to holders of note payable in the event of liquidation.
a. P 88,800 b. P100,000
C. P 86,400 d. P109,600

Selected balances from the BACOLOD COMPANY’S SILAY BRANCH and TALISAY BRANCH are as follows:
SILAY BRANCH TALISAY BRANCH
Merchandise Inventory, January 1, 2017 P16,800 P15,200
Imprest Branch Fund 1,600 1,200
Merchandise Inventory, December 31, 2017 15,200 9,600
Accounts receivable, January 1, 2017 44,000 34,800
Shipment from Home Office 48,800 37,600
Accounts receivable, December 31, 2017 56,000 ?
Cash collections 68,000 56,000
Sales 80,000 64,000
Cash expenses 16,800 11,440
All sales, collections, and expenses are handled at the branch. All cash received from sales and collections are
sent directly to the home office. Expenses are paid by the branch from the imprest fund and immediately
reimbursed by the home office and credited to the Home office account. All expenses paid by the branch are
recorded by the branch.
17. calculate the balance of the Home office account (1) on January in the books of Silay Branch
Talisay Branch and (2) on December 31, 2017 in the books of Talisay Branch.
Silay Branch Talisay branch
a. (1) P 62.400 (2) P 51,200
b. (1) P 60,000 (2) P 51,200
c. (1) P 51,200 (2) P62,400
d. (1) P 62,400 (2) P53,600

18, Which of the following accounts would be shown in the combined financial statements of the home
office and branch?
a. Investment in branch account
b. Allowance for unrealized gross margin jn branch inventory
c. Home office account
d. none of the above
On January 1, 2017, companies AA, BB, and CC established a "joint operation" to manufacture a product they
each need their respective operations. They will contribute equal amounts and agreed to share on the
production output equally. AA and BB each contributed cash of P200,000 while CC is to contribute machinery
with a carrying cost of P185,000 and a fair value P200,000 that they all agreed is appropriate valuation. The
equipment will be depreciated over 10 years.
19. Calculate the net amount CCC will show the contributed machinery in its own balance sheet at
December 31, 2017.
a. P45,000 c. P60,000
b. P55,500 d. P58,500

20. Which of the following is a characteristic of a joint arrangement?

a. The parties are not bound by a contractual arrangement.
 b. The contractual arrangement gives two or more parties joint control over the arrangement.
c. a and b
d. neither a nor b
The following information is obtained from the books of accounts of PURE LOVE, INC., which recognizes
revenue by the installment method, on December 31, 2017.
Deferred Gross Profit (on the year-end balance sheet) P202,000
Total collections from installment sales 440,000
Gross profit rate based on cost 25%
During the year, a customer account with an original sale of P2,000 and a current uncollected balance of
P1,200 was repossessed. The fair value assigned to the repossessed item at time of repossession was P900.
21. Calculate the gain or loss on repossession recognized by PURE LOVE, INC. for the customer
account written off.
a. P 0 c. P 60 loss
b. P1,100 loss d. P300 loss
22. Which of the following types of insurance contracts would probably not be covered by PFRS 4?
a. Motor insurance c. Medical insurance
b. Life insurance. d. Pension Plan.
23. Build-operate-transfer "BOT" arrangement under the scope of IFRIC 12 are usually made between
(among):
a. The government (operator) and a private entity (grantor)
b. The government (grantor) and a private entity (operator)
c. The government (grantor), general public (operator) and a private entity
d. General public (grantor), a private entity (operator) and the government

The SAN AGUSTIN BUILDERS started work on three job sites during the current year. Any costs incurred are
expected to be recoverable. Data relating to the three jobs are given below:
Site Contract Price Actual Cost Estimated cost Billings on Contract Collections from
to Complete customers
Cebu P 500,000 P 375,000 - P 500,000 P 500,000
Bohol 600,000 254,167 P 381,250 180,000 100,000
Davao 250,000 100,000 100,000 150,000 100,000

24. Calculate the net amount to be reported on the balance sheet for the above projects under the
percentage of completion method:
Due to Customers
a. Due to Customers P (11,250)
b. Due to Customers P (13,750)
c. Due from customers P 13,750
d. Due from customers P 11,250
25. Calculate the net amount to be reported on the balance sheet for the above projects under the zero
profit method.
a. Due to Customers (P 11,250)
b. Due from Customers P 11, 250
c. Due from customers P 13,750
d. Due to Customers (P 13,750)

CONCRETE CONSTRUCTION COMPANY began construction work in 2017 for a project with a contract price
of P 8,000,000. CONCRETE uses the cost-to-cost percentage of completion method. The financial for 2017
relating to the contract shows the following:
Accounts receivable P 500,000
Construction in Progress 1,600,000
Progress billings to date 1,500,000
Gross profit earned in 2017 200,000
26. Calculate the following items for the year 2017.
Cash Collections CITD
a. P 1,000,000 P 1,400,000
b. P 7,500,000 P 1,400,000
c. P 1,000,000 P 1,600,000
d. P 1,400,000 P 1,600,000
27. The percentage of completion of a construction contract is based on all of the following, except
a. The proportion that contract costs incurred for work performed to date bear to the estimated total contract
b. Survey of work performed.
c. Completion of a physical proportion of the contract work.
d. Progress payments and advances received from customers.
BAHAY-PARE CORPORATION purchases all the outstanding shares of SINAG-TALA COMPANY on January
2, 2017 for P 385, 000 cash. On this date the Stockholders equity or SINAG-TALA is as follows:
Share capital, P10 par P175,000
Paid-in capital in excess of par 87,500
Retained earnings 175,000
Any excess of the fair value of net assets over the fair value of the investment is attributable to SINAG-TALA's
building which is currently overstated in its books. All other net asset items of the acquired company are fairly
valued at the acquisition date. The building has an estimated life of 10 years from January 2, 2017 without
salvage value. The condensed trial balances of the affiliated companies on December 31, 2017 appear as
follows:
BAHAY-PARE SINAG-TALA
Current assets P 420,000 P 302,750
Land 210,000 210,000
Building (net) 1,050,000 283,500
Investment in SINAG-TALA 385,000 -
Current liabilities (708,750) (367,500)
Ordinary shares, P3 par (525,000) -
Share capital, P10 par - (175,000)
Paid-in capital in excess of par (315,000) (87,500)
Retained earnings, Jan. 2, 2017 (446,250) (175,000)
Sales (367,500) (70,000)
Cost of goods sold 210,000 61,250
Operating expenses 78,750 17,500
Dividends declared 8,750 -
Totals -- --
28. Compute the consolidated net income for 2017.
a. P75,520 c. P72,550
b. P70,525 d. P75,250

29. Compute the consolidated Retained Earnings at December 31, 2017.

a. P517,250 c. P515,270
b. P525,170 d. P512,750
30. Working paper eliminations are entered in
a. Both the parent company's and the subsidiary's accounting records
b. The parent company's accounting records only
c. Neither the parent company's nor the Subsidiary's accounting records
d. The subsidiary's accounting records only

MANAGEMENT SERVICES (MS)

1. In financial accounting, certain rules and regulations must be following on how financial statements
must be presented to readers. In managerial accounting, no such restrictions generally apply because
it is
a. an entirely different field that need not observe the broad guidelines in financial accounting.
b. designed provide management with non-financial information for decision-making.
c. designed to provide accounting and other financial data to assist management in making business
decisions.
d. a disciplined that does not require presentation of financial statements
2. Which Of the following is not a key guideline used by management accountants?
a. Different costs for different purposes
b. Cost-benefit approach
c. Behavioral consideration
d. Technical supremacy
3. Monitoring the number of defects produced is an example of the management function of
a. planning b. control
c. decision making d. both a and c
4. Which of the following is a trait of a traditional cost management system?
a. unit-based drivers c. detailed activity information
b. tracing intensive d. focus on managing activities
1. The best opportunity for cost reduction is during the
a. manufacturing phase of the value chain.
b. product/process design phase of the value chain.
c. marketing phase of the value chain.
d. distribution phase of the value chain.
6. It translates an organization's mission and strategy into a comprehensive set of performance
measures that provide the framework for implementing its strategy.
a. Productivity component c. Cost leadership
b. Product differentiation d. The balanced scorecard

7. When using a balanced scorecard, a company's market share is typically classified as an element of
the firm's:
a. financial performance measures. c. learning and growth performance measures.
b. customer performance measures, d. internal-operations performance measures.
8. Three criteria to use in identifying cost drivers from the potentially large set of independent
variables that can be included in a regression model are
a. goodness of fit, size of the intercept term, and specification analysis.
b. independence between independent variables, economic plausibility, and specification analysis.
c. economic plausibility, goodness of fit, and significance of independent variable,
d. spurious correlation, expense of gathering data, and multicollinearity.
9. Which of the following is not a common problem encountered in collecting data for cost estimation?
a. Lack Of observing extreme values
b. Missing data
c. Changes in technology
d. Distortions resulting from inflation
10. Morton Graphics successfully bid on jobs printing standard notebook covers during the year using last
year's price of P0.27 per cover. This amount was calculated from prior year costs, noting that no changes in
any costs had occurred from the past year to the current year. At the end of the year, the company manager
was shocked to discover that the company had suffered a loss. "How could this be?" she exclaimed. "We had
no increases in cost and our price was the same as last year. Last year we had a healthy income." What could
explain the company's loss in income this current year?
a. Their costs were all variable costs and the amount produced and sold increased.
b. Their costs were mostly fixed costs and the amount produced this year was less than last year.
c. They used a different cost object this year than the previous year.
d. Their costs last year were actual costs but they used budgeted costs to make their bids.
11. Which of the following is not an assumption of cost-volume-profit analysis?
a. The behavior of revenues and expenses is accurately portrayed and is linear over the relevant range.
b. Sales mix will be constant.
c. Efficiency and productivity will both increase.
d. The inventory level at the end of the period will be insignificantly different from that at the beginning.
12. If variable cost as a percentage of sales increases, the
a. contribution margin percentage increases.
b. selling price increases.
c. break-even point in pesos increases.
d. fixed costs decrease.
13. Which of the following is a true statement about sales mix?
a. Profits may decline with an increase in total peso sales if the sates mix shifts to sell more of the high
contribution margin product.
b. Profits may decline with an increase in total peso sales if the sales mix shifts to sell more of the lower
contribution margin product
c. Profits will remain constant with an increase in total peso gales the total sales in units remains constant.
d. Profits will remain constant with a decrease in total peso sales if the sales mix also remains constant.
14. The coefficient of determination is important in explaining variances in estimating equations. For a
certain estimating equation, the unexplained variation was given as 26,505. The total variation was
given as 46,500. What is the coefficient of determination for the equation?
a. 0.34 c. 0.57
b. 0.43 d. 0.66
15. A cost function is an expression that mathematically links costs, their behavior, and their cost driver. If the
cost function for a relevant range or 100,000 units to 200,000 units is:
Total costs = P500,000 + P8x, where x is the number of units produced,
Which of the following is incorrect?
a. P 500,000 is the total fixed cost
b. P 8 is the variable cost per unit
c. Total cost is P2,100,000 if production is 200,000 units
d. Total cost is P500,000 if production is zero (0).
16. Twin Products Company produces and sells two products. Product M sells for P12 and has variable costs
of P6. Product W sells for P15 and has variable costs of P10. Twin predicted sales or 25,000 units of M and
20.000 of W. Fixed costs are P60,000 per month. Assume that Twin achieved its sales goal Of P600,000 for
September, but fell short of its expected operating income of "190,000. Which of the following descriptions
best describes the actual results reported or revenue P600,000 and operating income of less than
P190,000?
a. Twin sold 50,000 of M and no product W.
b. Twin sold more of both products M and W than expected.
c. Twin sold more of product W and less of product M than expected.
d. Twin sold more of product M and less of product W than expected.
17. The Pancheco has an operating leverage of 2. Sales for 2016 are P200,000 with a contribution margin of
P100,000. Sales are expected to be P300,000 in 2017. Net income for 2017 can be expected to increase by
What amount over 2016?
a. P25,000 c. 200 percent
b. P50,000 d. 40 percent

18. Merry Company. has sales of P400,000 with variable costs of P300,000, fixed costs of P120,000, and an
operating loss of P20,000. How much increase in sales would Merry need in order to achieve a target
operating income of 10% of sales?
a. P400,000 c. P500,000
b. P462,000 d. P800,000

19. Larz 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 40,000
Net income P60,000
In an attempt to improve its product in the coming year, Larz 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. A new machine will 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.
If Larz wishes to maintain the same contribution margin ratio after implementing the changes, what selling
price per unit of product must it charge next year to cover the increased material costs?
a. P27.00 c. P32.50
b. P25.00 d. P28.33
20. The Ship Company is planning to produce two products, Alt and Tude. Ship is planning to sell 100,000
units of Alt at P4 a unit and 200,000 units of Tude at P3 a unit. variable costs are 70% sales for Alt and 80%
sales for Tude. In order to realize a total profit of P160,000, what must the total fixed costs be?
a. P80,000 c. P90,000
b. P240,000 d. P600,000

21. The following information pertains to the Duffy Company's three products:
A B C
Unit sales per year 500 800 500
setting price per unit P3.00 P4.00 P3.00
Variable costs per unit 1.20 3.00 3.30
Unit contribution margin P1.80 P1.00 (P0.30)
Contribution margin ratio 60% 25% (10%)
Assume that the selling price of product C is increased to P3.50 with a reduction in annual to 350 units.
Annual profits will
a. increase by P45. c. increase by P150.
b. increase by P70. d. increase by P220.
22. The following information relates to Yellow Corporation:
Sales at the break-even point P312,000
Total fixed expenses P250,000
Net operating income P150,000
What is Yellow’s margin of safety?
a. P62,500 c. P100,000
b. P187,500 d. P212,500
23. Alvin Inc. planned and actually manufactured 200,000 units its in 2018. It’s first year of operation.
Variable manufacturing costs were P30 per unit of product. Planned and actual fixed manufacturing costs were
P600,000, and marketing and administrative costs totaled P400,000 in 2018. Alvin sold 120.000 units of
product in 2018 at a selling price of P40 per unit.
Alvin’s 2018 operating income using absorption costing is
a. P840,000 c. P440,000.
b. P800,000 d. P200,000.
24. The following information was extracted from the first year absorption-based accounting records of Enigma
Corporation
Total fixed cost incurred P100,000
Total variable costs incurred 50,000
Total period costs incurred 70.000
Tota; variable period costs incurred 30,000
Units produced 20,000
Units sold 12,000
Unit sales price P12

If Enigma Corporation had used variable costing in its first year of operations, how much income (loss) before
income taxes would it have reported?
 a. (P6,000) c. P54,000
b. P26,000 d. P2,000

25. Company Y is approached by a new customer to fulfill a large one-time-only special order for a product
similar to one offered to regular customers. The company has excess capacity. The ff. per unit data apply for
sales to regular customers:
Direct materials P 200
Direct manufacturing labor 60
Variable manufacturing support 30
Fixed manufacturing support 100
Total manufacturing costs 390
Markup (30%) 117
Estimated selling price P507
For Company Y, what is the minimum acceptable price of this one-time-only special order?
a. P290 c. P260
b. P390 d. P507
26. Orange Corporation currently manufactures a subassembly for its main product. The costs per unit as
follows:
Direct labor 10.00
Variable overhead 5.00
Fixed overhead 8.00
Total P24.00
Recto Company has contacted Orange with an offer to sell them 5,000 of the subassemblies for P22.00 each.
Orange will eliminate P25,000 of fixed overhead if it accepts the proposal.
Should orange make or buy the subassemblies? What is the difference between the two alternatives?
a. Buy; savings = P20,000 c. Make; savings = P60,000
b. Buy; savings = P50,000 d. Make; savings = P5,000
27. Traditional overhead allocation methods as opposed to activity-based allocation methods work
best when:
a. there are many different volume-based cost drivers.
b. most costs are unit-level costs.
c. overhead can be estimated.
d. most costs are facility-level costs.
28. One way to tell whether your cost accounting system is distorting product costs is if you discover
that the most complex products you produce are:
a. overpriced and the simplest to produce are underpriced.
b. underpriced and the simplest to produce are overpriced.
c. overpriced as are the simplest to produce.
d. underpriced as are the simplest to produce.
29. Engineering design is an activity vital to the success of any motor vehicle manufacturer. Identify
the level which engineering design would be classified in the cost hierarchy used with ABC for a maker
of a line of automobiles sold throughout the world.
a. Batch-level activity b. Product-level activity
c. Facility-level activity d. unit-level activity
30. In a traditional operating environment, a company usually
a. plans by using pull-through production scheduling.
b. has long production runs with infrequent setups.
c. maintains a minimum inventory level.
d. uses a multiskilled work force.
REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS (RFBT)
1. Reformation of the instrument and not annulment of contract is the proper remedy if the ground
is?
a. Accident c. Violence
b. Undue influence d. Intimidation
2. M, a minor sold the property of G his guardian in the name of G but without the latter's authority. The
property has a Fair Market Value of P1,000,000 but the selling price was P600,000. The contract is?
a. Rescissible c. unenforceable
b. Voidable d. Void
3. The following are the elements of quasi-delict, except:
a. Act or omission c. Damage/injury
b. Fault/negligence d. Pre-existing contract
4. Aries and Benny were sued on a promissory note which read as follows: "Manila, May I, 2017. For
value received, we the undersigned, promise insolidum to pay Carla or his order, on or before May 1,
2018, the sum of plus an interest of 6% (Sgd) Aries and Benny". Assuming that Benny is insolvent:
a. Carla can recover all his claim amounting to from Aries who is solvent.
b. Carla can recover only P500,000 from Aries without prejudice to recover from Benny when his finance
improves.
c. Carla cannot recover from Aries because the latter is obliged only to pay minus the share of Benny of
P500,000 since insolvency is a matter of defense.
d. Carla can recover all his claim amounting to from Aries who bound himself solidary, without prejudice
of course to his recovering later on from Benny, the share of the latter in the debt, plus interest from the date of
payment.
5. The employer shall be liable to compensate his employee for a personal injury sustained by him from
an accident under the workmen compensation act, if the accident arises from the following, except
a. It arises out of the employment.
b. It is stipulated in the contract of employment
c. It happens in the course of the employment
d. It is not caused by the notorious negligence" of the employee.

6. Statement I: The condition that some event happen at a determjnate time shall extinguish the obligation
as soon as the time expires or if it has become indubitable that the event will not take place.
Statement 2: The condition that some event will not happen at a determinate time shall render the obligation
effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot
occur.
a. First statement is true; second statement is false. c. Both statements are true.
b. First statement is false; second statement is true. d. Both statements are farse
 7. When the conditions have been imposed with the intention of suspending the efficacy of an
obligation to give, which of following rules is not correct in case of the improvement, loss or
deterioration of the thing during the pendency of the condition?
a. If the thing is lost without the fault of the debtor, the obligation shall be extinguished.
b. If the thing is lost through the fault of the debtor, the debtor shall be obliged to-pay damages.
c. if the thing deteriorates without the fault or the debtor, the impairment is to be borne by the creditor.
d. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the debtor.

8. In general, moral damages may be recovered in the following and analogous cases, except?
a. A criminal offense resulting in physical injuries
b. Quasi-delicts causing physical injuries.
c. Breach of contract resulting in physical injuries.
d. seduction, abduction, rape, or other lascivious acts.
9. Compensation is not proper when the debts arises in the following case except?
a. Depositum c. Contract of Mutuum
b. Obligation of a depositary d. Commodatum
10. The following debt may be subject to compensation, except?
a. One is Perfectly valid and the other is voidable.
b. One is rescissible and the other is voidable
c. One is perfectly valid and the other is unenforceable
d. Both are voidable.

11. The debtor shall lose the right to make use of the period under the following, except?
a. When after the obligation has been contracted, the debtor becomes insolvent even the debtor gives a
guaranty or security for the debt
b. When the debtor does not furnish to the creditor the guaranties or securities which he has promised.
c. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period.
d. When the debtor attempts to abscond.
12. In alternative obligation, the right of choice belongs to?
a. The debtor, unless it has been expressly granted to the creditor.
b. Always belong to the debtor.
c. To the creditor, unless it has been expressly granted to the debtor.
d. Always belong to the Creditor.

13. Statement 1: The obligations to give determinate things and those which are not susceptible or partial
performance shall be deemed to be indivisible.
Statement 2: Even the object or service may be physically divisible, an obligation is indivisible if so provided by
law or intended by the partners.
a. First statement is true; Second Statement is false.
b. First statement is false; second statement is true,
c. Both statements are true.
d. Both statements are false
14. Statement 1: In obligations With a penal clause, the penalty snail substitute the indemnity for damages and
the payment of interests in case of noncompliance. if there is no stipulation to the contrary.
Statement 2: Proof of actual damages suffered by the creditor is necessary in order that the penalty may be
demanded.
a. First statement is true; Second Statement is false.
b. Fist statement is false; second statement is true.
c. Both statements are true.
d. Both statements are false
15. Which Of the following is not correct in an Obligation With a period?
a. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be
deemed to be one with a period.
b. The court as a rule is authorize to fix the period even the pet'i0d was not intended
c. The debtor loses the right to make use of the period, when the debtor after the obligation has been
contracted, he becomes insolvent, unless he gives a guaranty or security for the debt.
d. Whenever in an obligation a period is designated, it is presumed to have been established for the
benefit of both the creditor and the debtor.
16. Annulment is a proper remedy in this case?
a. Simple mistake of account.
b. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated.
c. When the true intention of the parties is not expressed in the instrument by reason of fraud.
d. Mistake as to the identity which is not the principal cause of the contract.
17. Which of the following statement is not correct?
a. The validity or compliance of the contract cannot be left to the will of one of the contracting parties.
b. The determination of the performance may be left to a third person.
c. The contracting parties are bound by the determination of performance by a third person from the
moment a third person decides.
d. The contracting parties are not bound by the determination of a third person if it is evidently inequitable
as when the third person acted in bad faith or under mistake.
18. The prescriptive period of an action for Quasi contract is?
Ten (10) years c. Four (4) years
b. Six (6) years d. One (1) year
19. The following are the requisites before a contract entered into in fraud of creditors may be
rescinded, except:
a. There must be credit existing prior to the celebration of the contract.
b. There must be fraud, or at least, the intent to commit fraud to the prejudice of the creditor seeking
rescission,
c. The creditor cannot in any legal manner collect his credit (subsidiary character of rescission)
d. The object of the contract must be legally in the possession of a 3rd person in good faith.
20. Under the following, prior tender of payment is not required, except:
a. When the creditor is absent or unknown
b. When the creditor does not appear at the place of payment;
c. When the creditor is incapacitated to receive the payment at the time the obligation is constituted.
d. When there are two or more persons claim the same right to collect;
21. Which of the following statement is not correct?
a. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge.
b. The person making the offer may fix the time, place, and manner of acceptance, all of which must be
complied with.
c. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed.
d. Contracts entered into during a lucid interval are voidable.
22. Which of the following statement is not correct about mistake vitiating consent?
a. In order that mistake may invalidate consent, it should refer to the substance of the thing which is the
object of the contract, or to those conditions which have principally moved one or both parties to enter
into the contract.
b. A simple mistake of account shall give rise to its correction.
c. There is mistake even the party alleging it knew the doubt, contingency or risk affecting the object of
the contract.
d. Mutual error as to the legal effect of an agreement when the real purpose of the parties is frustrated,
may vitiate consent.
23. Which Of the following statement is not correct?
a. There is fraud when, through insidious words or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without them, he would not have agreed to.
b. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by
confidential relations, constitutes fraud.
c. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in
themselves
d. There is absolute simulated contract when the parties conceal their true agreement

24. Which Of the following statement is not correct about reformation of instrument?
a. When a mutual mistake of the parties causes the failure of the instrument to disclose their real
agreement, said
b. If one party was mistaken and the other acted fraudulently or Inequitably in such a way that the
instrument does not Show their true intention, the latter may ask for the reformation of the instrument.
c. When one party was mistaken and the other knew or believed that the instrument did not state their real
agreement, but concealed that fact from the former, the instrument may be reformed.
d. When one of the parties has brought an action to enforce the Instrument, he cannot subsequently ask
for its reformation
25. The following contracts are rescissible, except?
a. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one-fourth of the value of the things which are the object thereof.
b. Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them;
c. Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
d. Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained.
26. Which Of the following statement is not correct about void contract?
a. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may
be enforced.
b. The defense of illegality of contract is not available to third persons whose interests are not directly
affected.
c. A contract which Is the direct result of a previous illegal contract, is also void and inexistent.
d. The action or defense for the declaration of the inexistence of a contract prescribe in thirty (30) years.
27. The freedom of contract is
a. A constitutional right
b. Statutory right
c. Both constitutional and statutory right
d. Neither constitutional or statutory right.
28. Three of the following statements are true. Which one is false?
a. Not only the parties, but their heirs and assigns are bound by their contract.
b. Obligations arising from contracts have the force of law between the contracting parties and must be
complied with in good faith.
c. Fraud committed in the performance of an obligation gives the injured party the right to annul the
contract.
d. Generally, the debtor is not liable for the non-performance of his obligation due to fortuitous event.
29. X, Y & Z are partners in XYZ & Co. to which W is indebted in the amount of P600,000 X, Y & Z agreed that
they will just divide equally the partnership credit of P600tOOO. X and Y were able to collect P200,000 each
from W, but when Z was collecting W had already become insolvent.
a. X and Y will just be allowed to retain what they had collected.
b. To equalize the Situation Z Will be allowed to Withdraw P100,000 from the partnership funds.
c. X and Y will share with Z the P400,000 already collected.
d. X and Y will return to the partnership capital the P400,000.
30. In general, to show the existence of a partnership, three (3) of the following characteristics must be
proved. Which is the exception?
a. There was a joint interest in the profits.
b. There was an agreement in writing.
c. There was an intention to create a partnership.
d. There was a common or joint fund obtained from contributions.

PART I - AUDITING THEORY

1. The following are the elements of an assurance engagement except
a. A financial information c. A three-party relationship
b. suitable criteria d. Sufficient appropriate evidence
2. The "hallmark" Of auditing is
a. Available audit technology. c. Professional judgment.
b. Generally accepted auditing standards. d. Materiality and audit risk.
3. Which statement is incorrect regarding audit evidence?
a. The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions or
which to base the audit opinion.
b. Accounting records alone do not provide sufficient audit evidence.
c. The auditor uses professional judgments and exercises professional skepticism in evaluating the quantity
and quality of audit evidence, and thus its sufficiency and appropriateness, to support the audit opinion.
d. The matter of difficulty or expense involved is a valid basis for omitting and audit procedure for which there
is no alternative.
4. No deletions of audit documentation are allowed after the
a. Client’s year- end c. Last date of significant fieldwork.
b. Documentation completion date. d. Report release date.
5. Which item would not be contained in an audit program?
a. Staff assigned to the audit.
b. List Of specific procedures (tasks) to be performed and the objectives to be met that relate primarily to
financial statements assertions.
c. Documentation of system being reviewed.
d. Estimated time required to perform each task.
6. The auditor is not always required to perform
a. Risk assessment procedures. c. Test of controls.
b. Substantive procedures. d. Both a and c
7. The auditor should perform which of the following as risk assessment procedure?
a. Analytical procedures c. Recalculation
b. Confirmation d. Reperformance
8. A potential business risk created by current and prospective financing requirements may most likely
include
a. Increased product liability
b. Increased legal exposure
c. The entity does not have the personnel or expertise to deal with the changes in the industry.
d. Loss of financing due to the entity's inability to meet financing requirements.
9. Which of the following is not an example of analytical procedures?
a. Compared inventory turnover by major class with the prior year on a monthly and quarterly basis.
b. Compared gross profit percentages by major product classes with the prior year.
c. Examined invoices for plant asset additions to determine whether the client had erroneously recorded
ordinary repairs as plant assets.
d. Examined monthly performance reports and investigated significant variations from budgeted amounts.
10. It consists of the policies and procedures that help ensure that management directives are carried
out.
a. Control environment c. Monitoring
b. Control activities d. Risk assessment process
11. Which of the following statements is an example of an inherent limitation of internal control?
a. The effectiveness of control procedures depends on segregation of duties
b. Procedures are designed to assure that transactions are executed as management authorizes
c. Errors may arise from mistakes in judgment
d. Computers process large numbers of transactions
12. In obtaining an understanding of an entity’s internal control, an auditor is required to obtain
knowledge about the
Operating effectiveness of controls Design of controls
a. Yes Yes
b. No Yes
c. Yes No
d. No No
13. The following are examples of conditions and events that may indicate the existence of risks of
material misstatement, except
a. Operations in regions that are economically stable
b. Pending litigation and contingent liabilities
c. Application Of new accounting pronouncements
d. High degree of complex regulation
14. The auditor should determine overall responses to address the risks of material misstatement at
the financial statement level. such responses least likely include
a. Assigning more experienced staff.
b. Emphasizing to the audit team the need to maintain professional skepticism in gathering and evaluating
audit evidence.
c. Performing predictable further audit procedures.
d. Performing substantive procedures at period-end instead of an interim date.
15. After obtaining an understanding of an entity's internal controls, an auditor may assess control risk
at the maximum for some assertions because the auditor:
a. Believes internal control activities are unlikely to be effective.
b. Determines that internal control is not well-documented.
c. Performs tests of controls to restrict detection of risk to an acceptable level.
d. Identifies control activities that are likely to prevent material misstatements.
16. When controls are deemed ineffective and assessed control risk is at the maximum for a private
company, there Will be _______ emphasis placed on tests of controls.
a. No c. Moderate
b. Relatively little d. Heavy
17. Which of the following is least likely to be a test of control?
a. Inquiries of approving personnel
b. Inspection of management's engagement letter
c. Observation of the application of a policy
d. Reperformance of the application of a policy
18. As the acceptable level of detection risk decreases, an auditor may change the
a. Timing of substantive tests by performing them at an interim date rather than at year end.
b. Nature of substantive tests from a more effective to a less effective procedure.
c. Extent of substantive tests by using larger sample size
d. Assessed level of inherent risk to a higher amount
19. The sequence of steps in gathering evidence as the basis of the auditor's opinion is:
a. Substantive tests, documentation of control structure, and tests of controls.
b. Documentation of control structure, substantive tests, and tests of controls.
c. Documentation of control structure, tests of controls, and substantive tests.
d. Tests of controls, documentation of control structure, and substantive tests.
20. Which of the following are most often involved in perpetrating fraudulent financial reporting?
a. The chief executive and chief financial officers.
b. The auditors and the attorneys.
c. The audit committee members.
d. The accounts payable clerks.
PART II - AUDITING PROBLEMS
PROBLEM NO. 1
During your audit of the records of the Jungkook Corporation for the year ended December 31, 2017, the
following facts were disclosed:
Raw materials inventory, 1/1/2017 P 720,200
Raw materials purchases 5,232,800
Direct labor 6,300,000
Manufacturing overhead applied (150% of direct 9,450,000
labor)
1,240,000
Finished goods inventory, 1/1/2017
8,112,800
Selling expenses
7,377,200
Administrative expenses

Your examination disclosed the following additional information:

a.) Purchases or raw materials
Month Units Unit Price Amount
January — February 55,000 P17.76 P976,8000
March — April 45,000 20.00 900,000
May — June 25,000 19.60 490,000
July — August 35,000 20.00 700,000
September — October 45,000 20.40 918,000
November — December 60,000 20.80 1,248,000
265,000 P5,232,800
b) Data with respect to quantities are as follows:
Units
Explanation 1/1/17 12/31/17
Raw materials 35,000 ?
work in process (80% completed) 0 25,000
Finish goods 15,000 40,000
sales, 205,000 units
c) materials are issued at the beginning of the manufacturing process. During the year, no returns, spoilage, or
wastage occurred. Each unit of finished goods contains one unit of raw materials.
d) Inventories are stated at cost as follows:
• Raw materials - according to the FIFO method
• Direct labor - at an average rate determined by correlating total direct labor cost with effective production
during the period
• Manufacturing overhead - at an applied rate of 150% of direct labor cost
QUESTIONS:
Based on the above and the result of your audit, answer the following:
21. The raw materials inventory as of December 31, 2017 is
a. P1,976,000 b. P1,352,000 c. P936,000 d.P897,800
22. The work in process inventory as of December 31, 2017 is
a. P1,780,000 b. P1,751,294 c. P1,885,565 d. P1,776,000
23. The finished goods inventory as of December 31, 2017 is
a. P3,352, OOO b. P3,334,000 c. P3,553, 130 d. P3,284,588
24. The cost of goods sold for the year ended December 31, 2017, is
a. P16,897,000 b. P16,568,304 c. P15,857,000 d. P16,875,000
25. Auditing the valuation assertion for inventory of a client utilizing the FIFO cost flow assumption will
require the auditor to examine
a. Invoices representing the more recent purchases of inventory.
b. Invoices representing the purchase of base year inventory in the year of inception.
c. Shipping documents for a sample of cost of goods sold transactions during the year.
d. Shipping documents for a sample of units on hand in the interim period.
PROBLEM NO. 2
Your audit of Jimin Company disclosed that your client kept very limited records. Purchases of merchandise
were paid for by check, but most other items were out of cash receipts. The company's collections were
deposited weekly. No record was kept of cash in the bank, nor was a record kept of sales. Accounts receivable
were recorded only by keeping a copy of the ticket, and this copy was given to the customer when he paid his
account.
Additional information:
a. On January 2, 2017, Jimin Company started business and issued share capital, 72,000 shares with PICO
par, for the following considerations:
Cash P600,000
Building (useful life, 15 years) 5,400,000
Land 1,800,000
P7,800,000
b. An analysis of the bank statements showed total deposits, including the original cash investment, of
pa, 200,000. The balance in the bank statement on December 31, 2017, was P 300,000, but there were
checks amounting to P60,000 dated in December but not paid by the bank until January 2018. Cash on hand
on December 31, 2017 was P 150,000 including customers' deposit of P90,000.
c. During the year, Jimin borrowed from the bank and repaid PI 50,000 and P30,000 interest.
d. Disbursements paid in cash during the year were as follows:
Utilities P120,000
Salaries 120,000
Supplies 240,000
Dividends P660,000
e. An inventory of merchandise taken on December 31, 2017 showed P906,000 of merchandise.
f. Tickets for accounts receivable totaled but P60,000 of that amount may prove uncollectible.
g. Unpaid suppliers invoices for merchandise amounted to P420,000.
h. Equipment with a cash price of P480,000 was purchased in early January on a one-year installment basis.
During the year, checks for the down payment and all maturing installments totaled P534,000. The equipment
has a useful life of 5 years.
QUESTIONS:
Based on the above and the result of your audit, determine the following: (Disregard income taxes)
26. Payments for merchandise purchases in 2017
a. P2,586,000 c. P2,646,000
b. P2,436,000 d. P3,246,000
27. Collections from sales in 2017
a. P3,720,000 c. P3,000,000
b. P4,320,000 d. P4,920,000
28. Net income for the year ended December 31, 2017
a. P1,770,000 c. P1,560,000
b. P1,620,000 d. P960,000
29. Shareholders' equity as of December 31, 2017
a. P9,390,000 c. P9,180,000
b. P9,240,000 d. P8,580,000
30. Total assets as of December 31, 2017
a. P9,583,200 c. P9,390,000
b. P9,540,000 d. P9,450,000