accounting

ACCOUNTING REVIEW
QUESTIONS
 FAR
1. On December 31, 2021, LALA Company had the following cash balances:

Cash in Bank – BDO checking account P 7,000,000

Petty Cash fund (all funds are reimbursed at year-end) 50,000

Time Deposit – three months, due January 15, 2022, 3,500,000

Savings Deposit 1,500,000

Cash in bank included P 540,000 of compensating balance against short-term borrowing arrangement. The
compensating balance is legally restricted as to withdrawal. Compute the amount of cash and cash equivalents that should
be reported in the statement of financial position as of December 31, 2021.

A. P 11,510,000 B. P 9,510,000

C. P 6,460,000 D. P 1,510,000
 SOLUTION
Answer: A. P 11,510,000

Cash in Bank – BDO checking account P7,000,000

Compensating balance which is restricted as to withdrawal (540,000)
Total balance 6,460,000
Petty Cash fund (all funds are reimbursed at year-end) 50,000
Time Deposit – three months, due January 15, 2022 3,500,000
Savings Deposit 1,500,000
Cash and Cash Equivalents, December 31, 2021 P 11,510,000
 FAR

2. Using the same information in number 1, compute the amount of cash and cash equivalents that
should be reported in the statement of financial position as of December 31, 2021 except that the
compensating balance is not legally restricted.

A. P 11,510,000

B. P 9,510,000

C. P 6,460,000

D. P 12,050,000
 SOLUTION
Answer: D. P 12,050,000

Cash in Bank – BDO checking account P7,000,000

Petty Cash fund (all funds are reimbursed at year-end) 50,000
Time Deposit – three months, due January 15, 2022 3,500,000
Savings Deposit 1,500,000
Cash and Cash Equivalents, December 31, 2021 P 12,050,000
 
 FAR
3. Which of the following statements is not correct?
A. If the deposit is not legally restricted as to withdrawal because of an informal compensating balance
agreement, the compensating balance is part of cash.
B. B. If the deposit is legally restricted as to withdrawal because of a formal
compensating balance agreement, the compensating balance is classified as “cash held as
compensating balance” under current assets if the related loan is short-term.
C. If the deposit is legally restricted as to withdrawal because of a formal compensating
balance agreement, the compensating balance is classified as “cash held as compensating balance”
under current assets regardless of the term of the loan.
D. If the deposit is legally restricted as to withdrawal because of a formal compensating
balance agreement, the compensating balance is classified as “non-current investment” if the related
loan is long-term
 FAR
4. On July 1, 2019, GLEE Company leased a delivery truck to MARS Company under a 3-year operating lease.

Total rent for the term of the lease will be P3,600,000 payable as follows:

12 months at P 55,000 = P 660,000

12 months at P 82,000 = 984,000

12 months at P175,000= 2,100,000

All payments were made when due. What amount should be reported as rent revenue for the year ended June 30, 2020?

a. 1,200,000 b. 2,400,000

c. 750,000 d. 500,000
 SOLUTION
Answer: A. 1,200,000

Average annual rent revenue (3,600,000/3

years) = 1,200,000
 FAR
5. Using the same information in number 4, what amount should be reported as
accrued rent receivable on June 30, 2021,?

a. 2,100,000

b. 1,200,000

c. 756,000

d. d.0
 SOLUTION
Answer : C. 756,000

Rent revenue from July 1, 2019 to June 30, 2021

(1,200,000 x 2 years) P 2,400,000
Less: Rentals received:
First 12 months P 660,000
Second 12 months 984,000 ( 1,644,000)
Rent receivable - June 30, 2021 P 756,000
 FAR
6. On January 1, 2021, LINX Company leased a building to KEI Company for a ten-year term at
an annual rental of P500,000.
At inception of the lease, LINX received P2,000,000 covering the first two years' rent of
P1,000,000 and a security deposit of P1,000,000.
This deposit will not be returned to KEI upon expiration of the lease but will be applied to
payment of rent for the last two years of the lease.
What portion of the P2,000,000 should be reported as current liability on December 31, 2021?
a. 1,500,000
b. 1,000,000
c. 500,000
a. 0
 SOLUTION

Answer: C.500,000

The second year's rent of P500,000 which was received in 2021

is unearned rent income and therefore shown as a current
liability on December 31, 2021.
 FAR

7. Using the same information in number 6, what portion of the P2,000,000

should be reported as noncurrent liability on December 31, 2021?
a. 2,000,000
b. 1,000,000
c. 1,500,000
d. 0
 SOLUTION

Answer: C.1,000,000

The deposit of P1,000,000 is unearned rent deposit classified

as noncurrent liability because it is applied to payment of rent for
the last two years of the lease.
 AFAR

1. TRUE or FALSE. Where an acquiree liquidates, the balance

of the Shareholders’ Distribution account is transferred to
the Liquidation account.
 SOLUTION

The statement if false. The balance of the

Liquidation account is transferred to the
Shareholders’ Distribution account.
 AFAR

2. TRUE or FALSE.

IFRS 3 Business Combinations requires disclosure of ‘a qualitative description of

the factors that make up goodwill recognized, such as expected synergies from
combining operations of the acquiree and the acquirer, intangible assets that do
not qualify for separate recognition or other factors.
 SOLUTION

The statement is true. Goodwill is not to be considered just a

residual calculation.
 AFAR
3.LALA Co. is constructing a tunnel for P950,000,000. Construction began in 2017 and is estimated to be
completed in 2021, On December 31, 2019. LALA has incurred costs totaling P546,000,000 with
P110,000,000 of that incurred in 2019. P143,000,000in 2018, and the remainder during 2017. LALA
believes that it completed 30% of the tunnel during 2019, although that may change based on future
activity. LALA Co. uses PFRS 15 for its accounting and regards its cost numbers as very uncertain (cost
recovery method/zero-profit approach/point in time).

What amount of revenue should KEI Co. recognize for the year ended December 31, 2019?
A. No revenue should be recognized until the contract is completed in 2021.
B. P546,000,000
C. P950,000,000
D. P110,000,000
 SOLUTION

P110,000,000 costs incurred in 2019 = revenue recognized in 2019.

Under the costs recovery (zero-profit approach/point in time) of construction

accounting, revenue is recognized up to the extent of costs incurred as long as it is
probable will be recoverable
 AFAR
4. The MAYMAY Company has entered into a 6-year fixed price construction contract to build a
factory. The contract value is P30,000,000 and the estimated costs are P10,000,000.

At the end of the first year, MAYMAY can estimate the outcome of the contract reliably. It has received
cash payments to the value of P9,700,000 and incurred costs of P5,000,000.

At the end of the first year, what amount should be recognized as revenue in the financial statements,
according to PFRS 15?
A. P5,200,000
B. P15, 000,000
C. P50,000,000
D. P9,700,000
SOLUTION

Answer: B. P15,00,000

P30M x 5/10 = P15,000,000

 AFAR
5. Property was purchased on December 31, 2019 for 20,000,000 baht. The general price index in the
country was 60.1 on that date. On December 31, 2021, the general price index had risen to 240.4. If
the entity operates in a hyperinflationary economy, what would be the carrying amount in the
financial statements of the property after restatement?

a. 20,000,000 baht

b. 1,200,200 baht

c. 80,000,000 baht

d. 4,808,000 million baht

 SOLUTION

Answer: C. P80,00,000
Since it is a non-monetary asset assumed recorded at book value
(or at cost), therefore, necessary to restate such account in
accordance with PAS No. 29.
Thus, 20,000,000-baht x 240.4/60.1= 80,000,000 baht.
 AFAR
6. COLA Company operates in a hyperinflationary economy. Its balance sheet at December 31, 20x9, follows:

Baht ('000)

Property, plant and equipment 900

Inventory 2,700

Cash 350

Share capital (issued 20x5) 400

Retained earnings 2,350

Noncurrent liabilities 500

Current liabilities 700

 AFAR
The general price index had moved in this way:

December 31
2015 100
2016 130
2017 150
2018 240
2019 300
The property, plant and equipment was purchased on December 31, 2018, and there is a six months' inventory held.
The noncurrent liabilities were a loan raised on March 31, 2019. The total assets after adjusting for hyperinflation
should be: ('000)

a. 1,550
b. 5,150
c. 5,850
d. 11,850
 SOLUTION

Answer: B. 5,150
Property, plant and equipment (900 x 300/150) 1,800
Inventory (2,700 x 300/270) 3,000
Cash 350
Total Assets 5,150

The inventory had been restated assuming that the index increased
proportionately over time [i.e.. [240 + 300)/2= 270], the cash and loan a
monetary item and therefore s not restated. if the loan had been index
linked, then it would have been restated in accordance with the loan
agreement.
 AFAR
7. Using the same information in No. 16, determine the
Retained Earnings on December 31, 2019: ('000)
a. 2,350
b. 2,750
c. 2,937
d. 7,050
 SOLUTION

Answer: B. 2,750
Share capital (400 x 300/100) 1,200

Retained earnings, December 31, 20x8 (balancing figure) 2,750

Noncurrent liabilities 500
Current liabilities 700
Total Liabilities and Equity 5,150

It should be noted that share capital is a non-monetary item, so, it should be

restored.
 AUDITING

1.An auditor would consider a cashier’s job description to contain compatible

duties if the cashier receives remittance from the mailroom and also prepares
the
A. Daily deposit slip.
B. d. Remittance advices.
C. Prelist of individual checks.
D. Monthly bank reconciliation.
 AUDITING
2. Which of the following internal control procedures will most likely prevent
the concealment of a cash shortage resulting from improper write-off of a
trade account receivable?
A. Write-offs must be supported by an aging schedule showing that only
receivables overdue for several months have been written off.
B. Write-offs must be approved by the cashier who is in a position to know if
the receivables have, in fact, been collected.
C. Write-offs must be approved by a responsible officer after review of credit
department recommendations and supporting evidence.
D. Write-offs must be authorized by company field sales employees who are in a
position to determine the financial standing of the customers.
 AUDITING
3. The cashier of LALA Jewelries covered a shortage in the cash working fund with
cash obtained at December 31 from a bank by cashing but not recording a check
drawn on the company out of town bank. How would you as an auditor discover
the manipulation?
A. By confirming all December 31 bank balances.
B. By counting the cash working fund at the close of business on December 31.
C. By investigating items returned with the bank cut-off statements of the
succeeding month.
D. By preparing independent bank reconciliations as of December 31
 
 AUDITING

4. An essential phase of the audit of the cash balance at the end of the year is the
auditor's review of cutoff bank statement. This specific procedure is not
useful in determining if
A. Kiting has occurred.
B. Lapping has occurred.
C. The cash receipts journal was held open.
D. Disbursements per the bank statement can be reconciled with total checks
written.
 AUDITING
5. A client maintains two bank accounts. One of the accounts, Bank A, has an overdraft of P100,000.
The other account, Bank B, has a positive balance of P50,000. To conceal the overdraft from the
auditor, the client may decide to
a. Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the receipt but not
the disbursement and list the receipt as a deposit in transit. Record the disbursement at the
beginning of the following year.
b. Draw a check for at least P100,000 on Bank B for deposit in Bank A. Record the receipt but
not the disbursement and list the receipt as a deposit in transit. Record the disbursement
at the beginning of the following year.
c. Draw a check for P100,000 on Bank B for deposit in Bank A. Record the disbursement but not
the receipt. List the disbursement as an outstanding check, but do not list the receipt as a
deposit in transit. Record the receipt at the beginning of the following period.
d. Draw a check for at least P100,000 on Bank A for deposit in Bank B. Record the disbursement
but not the receipt and list the disbursement as an outstanding check. Record the receipt at
the beginning of the following year
 AUDITING
6. MILADY Company’s unadjusted trial balance at December 31, 2021, included the following
accounts:
  Debit Credit
Accounts receivable P1,000,000  
 
Allowance for doubtful 40,000  
accounts
Sales   P16,000,000
Sales returns and allowances 800,000  

MILADY Company estimates its bad debt expense to be 1 ½ % of net sales. Determine its bad debt
expense for 2021.
a. P225,000
b. P228,000
c. P254,500
d. P 55,000
 SOLUTION

Sales P16,000,000
Less sales returns and allowances 800,000
Net sales 15,200,000
Multiply by bad debt rate 1½%
Bad debt expense P 228,000
 
 AUDITING
7. An analysis and aging of LALA Corporation accounts receivable at December 31, 2021, disclosed the
following:
Amounts estimated to be uncollectible P 1,800,000
Accounts receivable 19,500,000
Allowance for doubtful accounts (per books) 1,250,000
What is the net realizable value of LALA’s receivables at December 31, 2021?

a. P17,200,000

b. P16,250,000

c. P17,500,000

d. P14,450,000
 SOLUTION

Accounts receivable P19,500,000

Amount estimated to be uncollectible (2,300,000)
Net realizable value P17,200,000
 
 MAS
1. Which of the following costs is treated differently under
absorption costing and variable costing?
A. Indirect labor costs
B. Straight-line depreciation of delivery vehicle
C. Annual rental of office building
D. Straight-line depreciation of assembly machine
 MAS
2. All else constant, if the selling price increases,

a. Total variable costs will be higher than expected

b. Total contribution margin will be lower than expected
c. Per-unit contribution margin will be higher than
expected
d. Contribution margin percentage will be lower than
expected
 MAS
3. What is most likely an example of a committed fixed
cost?
a. Taxes on real estate
b. Public relations
c. Management development programs
d. Advertising programs
 MAS

4. Management accounting is used by an entity's

management for a multitude of purposes that do not
include
a. Marketing
b. Evaluation
c. Control
d. Reporting
 MAS
5. Inventoriable costs

a. Are regarded as assets before the products are sold

b. Include only prime costs of manufacturing a product
c. Include only the conversion costs of manufacturing a
product
d. Are expensed when products become part of finished
goods inventory
 MAS
6. Lovely has the following cost components for 100,000 units of product for the year:
Raw materials P 200,000
Direct labor 100,000
Manufacturing overhead 200,000
Selling/Administrative expense 150,000
All costs are variable except for P 100,000 of manufacturing overhead and P 100,000 of selling and
administrative expenses.
What are the total costs to produce and sell 110,000 units for the year?

a. P 540,000
b. P 695,000
c. P 650,000
d. P 715,000
 SOLUTION

Unit Variable cost= P 450,000/ P 100,000 = 4.5

Y = P 200,000 + 4.5 (110,000) = P 695,000
 
 MAS
7. FIGURA Company uses an annual cost formula for overhead of P
72,000 + P 1.60 for each direct labor hour worked. For the upcoming
month, Tondo plans to manufacture 96,000 units. Each unit required
five minutes of direct labor.
What is FIGURA Company's budgeted overhead for the month?
a. P 12,800
b. P 84,800
c. P 18,800
d. P 840,000
 SOLUTION
96,000 UNITS X 5 MINUTES = 480 minutes = 8,000 hours
Factory overhead = (P 72,000 / 12 months) + P 1.60
(8,000hrs)
= 6,000 + 12,800
Factory overhead = P 18,800

 
 TAX
1. Statement I. A percentage tax is a national tax.
Statement II. Services specifically subject to percentage tax rates apply to both
VAT-registered and Non-VAT registered taxpayers.
What is the correct answer?

a. Statement I is correct; Statement II is wrong

b. Statement I is wrong; Statement II is correct

c. Both statements are correct

d. Both statements are wrong

 TAX
2. Statement I: A seller is subject to percentage tax even if he registered as VAT
taxpayer if his annual sales do not exceed the VAT threshold.
Statement II: A non-VAT registered person who invoiced VAT on his sales shall
be subject to 12% VAT without the benefit of input VAT.
What is the correct answer?
a. Statement I is correct; Statement II is wrong
b. Statement I is wrong; Statement II is correct
c. Both statements are correct
d. Both statements are wrong
 TAX
3. A VAT-taxpayer made the following sales during the month:
Domestic sales P 2,100,000
Export sales P 1,000,000
What is the amount subject to business tax?
a. P 2,100,000
b. P 1,000,000
c. P 1,100,000
d. P 3,100,000
 SOLUTION

Domestic sales P 2,100,000

Export sales 1,000,000
Business Tax P 3,100,000
 TAX
4. Statement I: Once employed, one cannot be considered engaged in business.
Statement II: All sales by a businessman are considered made in the course of
business.
What is the correct answer?
a. Statement I is correct; Statement II is wrong
b. Statement I is wrong; Statement II is correct
c. Both statements are correct
d. Both statements are wrong
 TAX
5. Mang Indio has a sari-sari store with P 500,000 annual sales. He received
cash from the following transactions:
Sale of various merchandise P 30,000
Cash donated by his brother P 200,000
Cash from proceeds of bank loan P 300,000
Compute the amount subject to business tax.
A. P 30,000
B. P 230,000
C. P 330,000
D. P 530,000
 TAX
6. Statement I: The percentage of block sale in primary offering is determined
using the outstanding shares after the IPO.
Statement II: The percentage of stock sale in secondary offering is determined
using the outstanding shares before the IPO.
Which is incorrect?
a. Statement I only
b. Statement II only
c. Both statements
d. Neither Statement I nor II
 TAX
7. A VAT registered lessor of apartment houses has the following gross
rentals for the first quarter of the current year: for 30 units at 10,000
per month and 10 units for 15,000 per month. The lessor shall be:

A. Exempt from VAT

B. Subject to VAT on his gross rentals of 1,800,000
C. Subject to VAT on his gross rentals of 5,400,000
D. Subject to VAT on his gross rentals of 3,600,000
 LAW
1.A written instrument indicates that Ana received P20,000.00 from Elsa. Later,
the parties executed a written instrument indicating the delivery of Ana’s
laptop computer to Elsa. In case of doubt, what contract was entered into
between Ana and Elsa as regards the laptop computer?

A. Pledge
B. Dacion en pago
C. Sale
D. None, the contract is void as to the delivery of the computer.
 LAW
2. Jane obtained a loan of P100,000.00, secured by a pledge of diamond ring,
from Janette. The parties had a stipulation that should Jane fail to pay the debt
on due date, Janette may purchase the diamond ring at the current purchase
price. Is the stipulation valid?
A. No, such stipulation is in the nature of pactum commissorium.
B. Yes, the purchase of the ring by C at the current price does not come within
the prohibition on pactum commissorium.
C. C. No, but C can still purchase the ring if it is not sold at two public auctions.
D. Yes, but C can only purchase the ring if it is not sold at two public auctions
 LAW
3. Mary borrowed P50,000.00 from Lany. The parties agreed in a private
instrument that Mary's goods which are deposited in the warehouse of
Loraine would secure the loan by way of pledge. Lany never took actual
possession of the goods, nor did the parties agree that the goods would
remain with Loraine. Was a pledge constituted on the goods? goods would
a. Yes, because mere agreement that the goods would secure the debt is
sufficient.
b. No, the goods must be delivered to Lany, or there must be a common
agreement that the goods would remain in the possession of Loraine.
c. Yes, delivery of the goods to the creditor is not required if they are in the
control and possession of a third person.
d. No, the pledge should be in a public instrument for the pledge to be
constituted.
 LAW
4. Ding obtained a 12-month loan of P100,000.00 from Carlo. Ding
constituted a mortgage on a certain lot which he knew belonged to
Xion. On due date:
a. Carlo cannot collect from Ding because the obligation is
rendered void, Ding, the mortgagor, not being the owner of the
mortgaged lot.
b. Carlo can collect from Ding because the mortgagor need not be
the owner of the property.
c. Carlo can collect from Ding because although the mortgage is
void, the loan obligation can stand independently from it.
d. Carlo cannot collect from Ding because the latter was not
authorized by any power of attorney to mortgage the lot.
 LAW
5. A real mortgage:

a. confers ownership of the mortgaged property in the mortgagee

upon its constitution.

b. creates encumbrance on real property.

c. confers ownership of the mortgaged property in the mortgagee if

the principal obligation it secures is not paid on due date.

d. confers ownership of the mortgaged property in the mortgagee

upon default of the debtor if the partied stipulated about it
 LAW
6. The following statements pertain to either a commission agent or a broker.
I. He has a relation not only with his principal, and the buyers or sellers, but also with the
property which is the object of the transaction.
II. II. Maintains no relation with the thing he purchases or sells.
III. III. The goods are placed in his possession and disposal.
IV. IV. He is merely an intermediary whose function is to bring the parties to the transaction.
Determine whether the above statements pertain to commission agent or broker.
a. I and III pertain to a commission agent.
b. I and IV pertain to a commission agent.
c. II and III pertain to a broker.
d. I and IV pertain to a broker.
 LAW
7. An agency is impliedly revoked in three of the following cases. Which is the
exception?
a. When a new agent is appointed for the same business or transaction.
b. When the principal directly manages the business entrusted to the
agent, dealing directly with third persons.
c. When a special power of attorney is granted to another agent
pertaining to a special matter involved in a general power of attorney
issued to a previous agent.
d. When the desire of the principal is help the agent manage the
business.