Easy:

Theory of Accounts: Conceptual Framework, QC

1. What are qualitative characteristics of financial statements?
a. Qualitative characteristics are the attributes that make the information
provided in financial statements useful to users.
b. Qualitative characteristics are broad classes of financial effects of
transactions and other events.
c. Qualitative characteristics are non-qualitative aspects of an entitys
position and performance and changes in financial position.
d. Qualitative characteristics measure the extent to which an entity has
complied with all relevant standards and interpretations.
Answer: A
Under the Conceptual Framework of Financial Reporting, qualitative
characteristics are classified into fundamental and enhancing
qualitative characteristics. Fundamental QC include relevance and
faithful representation while Enhancing QC include verifiability,
comparability, understandability and timeliness.
Taxation: General Principles of Taxation
2. Which of the following may not raise money for the government?
a. Power of Taxation
b. Police Power
c. Power of Eminent Domain
d. Privatization of governments capital assets
Answer: C
In eminent domain, the owner of the property is paid just
compensation. Thus, no money is raised by the government and
instead, there is disbursement of government funds.
Auditing Theory: Introduction to Assurance, Auditing and Related
Services
3. The Philippine Framework for Assurance Engagements
a. Contains basic principles, essential procedures, and related guidance
for the performance of assurance engagements.
b. Defines and describes the elements and objective of an assurance
engagement, and identifies engagements to which PSAs, PSREs and
PSAEs apply.
c. Provides a frame of reference for CPAs in public practice when
performing audits, reviews and compilation of historical financial
information.
d. Establishes standards and provides procedural requirements for the
performance of assurance engagements.
Answer: B

The framework does not establish itself standards or provide

procedural requirements for the performance of assurance
engagements. Assurance engagements do not include compilation of
historical financial information. PSAs, PSREs and PSAEs contain basic
principles, essential procedures and related guidance, consistent with
the concepts in the Framework, for the performance of assurance
engagements.
Auditing Theory: Accounting Profession
4. Republic Act 9298 is known as the
a. Philippine Accountancy Act of 2001
b. Philippine Accountancy Law of 2001
c. Philippine Accountancy Act of 2004
d. Philippine Accountancy Law of 2004
Answer: C
Republic Act No. 9298 is the law regulating the practice of accountancy in
the Philippines. This law is known as the Philippine Accountancy Act of
2004.

Management Services: Basic Considerations in MAS

5. A person who is qualified by education, experience, technical ability, and
temperament to advise or assist businessmen on a professional basis in
identifying, defining, and solving specific management problems involving
the organization, planning, direction, control and operation of a firm is
called
a. Management Consultant
c. Accounting Technician
b. Certified Public Accountant
d. Management Consultant
Answer: D
Theory of Accounts: Biological Assets
6. Which of the following is incorrect?

a.
b.
c.
d.

Biological Asset
Inventories
Sheep
Dairy Cattle
Pigs
Vines

Agricultural Produce
Yarn
Milk
Carcass
Grapes

Wool
Cheese
Sausage
Wine

Answer: A
Theory of Accounts: Cash and Cash Equivalents
7. The Petty Cash Fund account under imprest fund system is debited
a. Only when the fund is created.

b. When the fund is created and every time it is replenished.

c. When the fund is created and when the size of the fund is increased.
d. When the fund is created and when the fund is decreased.
Answer: C
Theory of Accounts: Presentation of Financial Statements
8. Are the following statements true or false, according to IAS1
Presentation of financial statements?
(1) Dividends paid should be recognised in the statement of
comprehensive income.
(2) A loss on disposal of assets should be recognised in the statement of
changes in equity.
Statement (1)
Statement (2)
A
False
False
B
False
True
C
True
False
D
True
True
Answer: A
A loss on disposal of assets is recognised in the statement of
comprehensive income because IAS16 Property, plant and equipment does
not permit otherwise (IAS1 para 88).
Dividends paid are recognised in the statement of changes in equity (IAS1
para 106).
Practical Accounting I:
9. At January 1, a sole proprietorships asset totaled P210,000, and its
liabilities amounted to P 120,000. During the year, owner investments
amounted to P 72,000, And owners withdrawal totaled P75,000. At year
end, assets totaled P 270,000 and liabilities amounted to P 171,000. The
amount of net income for the year was
a. P 0
b. P6,000

c. 9,000
d. 12,000

Answer: D
Owners Equity, Jan 1 (P 210,00 P 120,000)
P 90,000
Investment
120,000
Withdrawal
(75,000)
Owners Equity, Dec 31 (P 270,00 P 171,000)
99,000
Net Income
P 12, 000
Practical Accounting II: Instalment Sales
10. Rachel Corp., which began business on January 1, 2014, appropriately
uses the instalment sales method of accounting for income tax reporting
purposes. The following data are available for 2014:

Installment Accounts Receivable, 12/31/14

Installment Sales for 2014
Gross Profit on sales

P 200,000.00
350,000.00
40%

Under the instalment sales method, what would be Rachells deferred

gross profit at December 31, 2014?
a. P 20,000
c. P 80,000
b. P 90,000
d. P 60,000
Answer: C
Installment Accounts Receivable, 12/31/14
Gross Profit on sales
Deferred Gross Profit, 12/31/2014

P 200,000.00
40%
P 80,000.00

Average
Theory of Accounts: Borrowing Costs
1. The Scandium Company is commencing a new construction project,
which is to be financed by borrowing. The key dates are as follows:
15 May 20X8 Loan interest relating to the project starts to be incurred
3 June 20X8 Technical site planning commences
12 June 20X8 Expenditures on the project start to be incurred
18 July 20X8 Construction work commences
According to IAS23 Borrowing costs, from what date can Scandium
commence the capitalization of borrowing costs?
a. 15 May 20X8
b. 3 June 20X8
c. 12 June 20X8
d. 18 July 20X8
Question 4 - C
All relevant conditions in IAS23 para 17 are fulfilled by the date when
expenditures on the project start to be incurred.
Theory of Accounts: Correction of Error
2. Which of the following combinations of trial balance totals does not
indicate a transposition?
(a) P65, 470 debit and P64, 570 credit
(c) P25, 670 debit and P26,
670 credit
(b) P32, 540 debit and P35, 420 credit
(d) P14, 517 debit and P15,
471 credit
Answer: C
Auditing Theory:
Documentation

Audit

Objectives,

Procedures,

Evidence

and

3. In performing tests of the operating effectiveness of an entitys

controls, an auditor selects from a variety of techniques, including
a. Re-performance and Observation
b. Inquiry and Analytical Procedures
c. Comparison and Confirmation
d. Inspection and Verification
Answer: A
Test of controls include inquiry, observation, inspection and reperformance of a policy or procedure that pertains to an assertion.
Answers B, C and D are incorrect because they include procedures which
are more closely associated with substantive testing namely analytical
procedures, comparison, confirmation and verification.
Taxation: General Principles
4. In case of conflict between tax laws and generally accepted accounting
principles
a. Both tax laws and GAAP shall be enforced.
b. GAAP shall prevail over tax laws.
c. Tax Laws shall prevail over GAAP.
d. The issue shall be resolved by the court.
Answer: C
Tax laws are passed by the legislative body while generally accepted
accounting principles are formulated by the Financial Reporting Standards
Council (FRSC). The accounting principles should always be in accordance
with law. Otherwise, it is not enforceable.
Business Law: Contracts
5. An
a.
b.
c.
d.

absolutely simulated contract is:

Void
Voidable
Valid
Unenforceable

Answer: A
Absolutely simulated contract is one where the parties do not intend to be
bound at all. Being fictitious is void. The simulation must be on the part of
both parties.
Theory of Accounts: PAS 37 Provisions, contingent liabilities and
contingent assets
6. The Dipper Company operates chemical plants. Its published policies
include a commitment to making good any damage caused to the
environment by its operations. It has always honored this commitment.
Which ONE of the following scenarios relating to Dipper would give rise
to an environmental provision as defined by PAS 37 Provisions,
contingent liabilities and contingent assets?
a. On past experience it is likely that a chemical spill which would
result in Dipper having to pay fines and penalties will occur in the
next year

b. Recent research suggests there is a possibility that the company's

actions may damage surrounding wildlife
c. The government has outlined plans for a new law requiring all
environmental damage to be rectified
d. A chemical spill from one of the company's plants has caused harm
to the surrounding area and wildlife.
Question 11 - D
The published policy creates a constructive obligation as defined by IAS37
para 10. The spill is a past event which gives rise to a present obligation
and the need for a provision under para 14.
The government plans and any chemical spill relate to future events, while
the "possible" damage to wildlife gives rise to a contingent liability which
should be disclosed.
Practical Accounting I: Investment in Property
7. Doug Companys accounting policy for investment properties is the fair
value model. One f its investment properties was measured at P
80,000,000.00 on December 31, 2014. The property had been acquired
on January 1, 2014 for a total of P 76,000,000.00, made up of P
69,000,000.00 paid to the vendor, P 3,000,000.00 paid to the local
authority as a property transfer tax and P 4,000,000.00 paid to
professional advisers. The useful life of the property is 40 years. What
is the amount of gain to be recognized in profit or loss for the year
ended December 31, 2014?
a. P 4,000,000
c. P 8,000,000
b. P 7,000,000
d. P 5,900,000
Answer: A
Investment in Property, December 31, 2014
Investment in Property, January 1, 2014
Gain to be recognized in profit or loss

P 80,000,000
76,000,000
P 4,000,000

MS: Accounting Information and Short-Term Decision-Making

8. Bryan Corporation manufactures a component part with the following
standard costs:
Direct Materials
Direct Labor
Factory Overhead
Standard Cost Per Unit

6
15
60
81

Factory overhead is applied at P 2 per standard direct labor hour. Thirty

percent (30%) of the applied FOH cost is fixed and is not affected by
any make-or-buy decision.
The component part can be purchased from outside suppliers at P 73
per unit.
In the decision to make or buy, what is the total relevant unit
manufacturing cost?

a. P 81

b. P 63

c. P 73

d. P 39

Answer: B
Direct Materials
P 6
Direct Labor
15
Factory Overhead (P 60 x 70%)
Total Relevant Unit Mftg Cost
63

42

In a make-or-buy decision analysis, the decision guide is to compare

the relevant cost to make with the relevant cost to buy. The relevant
cost to make may include relevant variable and fixed costs.
Practical Accounting I: Operating Segment
9. Operating profit and loss figures for the seven segments of helium
Company are as follows:
Segments
P
I
C
PP
A
N
S

Amount
P 13,000,000
1,200,000
7,800,000
(2,400,000)
( 600,000)
600,000
(1,800,000)

What segments are reportable based on the operating profit or loss

criterion?
a. Segments P, I, C, PP, A, N and S
c. Segments PP, A and S
b. Segments P, C and PP
d. Segments P and C
Answer: B
Segments
P
I
C
PP
A
N
S
TOTAL

Operating Profit
P 13,000,000
1,200,000
7,800,000

Operating Loss

(2,400,000)
( 600,000)
600,000
P 22,600,000

(1,800,000)
(P 4,800,000)

A segment is considered reportable or significant when its profit or loss is

10% or more of the higher of the combined profits or losses of all industry
segments. In the problem, the combined profit is P 22,600,000 while the
combined loss is P 4,800,000. The minimum amount of profit or loss is P
2,260,000 or 10% of combined profits for a segment to be reportable. Only
segments P, C and PP meet the criterion.
Taxation: Income Taxation

10.Suarnaba Corporation, a corporation engaged in business in the

Philippines and abroad, has the following data in 2007:
Gross Income, Philippines
Expenses, Philippines
Gross Income, USA
Expenses, USA
Interest on Bank Deposit

P 975,000
750,000
770,000
630,000
25,000

The income tax due if the corporation is

Domestic Corporation Resident Foreign Corp
Foreign Corp
a. P 116, 800
P 72,000
b.
127 750
78,750
c.
312,000
515,850
d.
109,500
67,500

Non-resident
P 320,000
350,000
116,800
300,000

Answer: B
Gross Income, Phils
Gross Income, USA
Interest, Bank Deposit
25,000
Total
Less: Deductions
Expenses, Phils
Expenses, USA
Total deductions
Taxable Income
Rate of tax
Income tax due

Domestic
P 975,000
770,000
1,745,000

Resident Foreign Non-resident Foreign

P 975,000
P 975,000
--------975,000

750,000
750,000
630,000
1,380,000
750,000
365,000
225,000
35%
35%
P 127,750 P 78,750

1,000,000
__
----____
1,000,000
35%
P 350,000

Tax Rates 35% from November 1, 2005 until December 31, 2008
30% effective January 1, 2009
Difficult
Theory of Accounts: Conceptual Framework, QC
1. An enhancing quality described in the Conceptual Framework is that
a. Information must be decision-useful to all potential users of financial
reporting.
b. General-purpose financial reporting is the primary source of
information for users of financial reporting.
c. Users need reasonable knowledge of business and financial accounting
matters to understand the information contained in financial
statements.
d. All of the choices are correct.
Answer: C
A and B describe Fundamental Qualitative Characteristics. C describes
understandability.

Business Law: Negotiable Instruments

2. Assuming all the other requisites of negotiability are present, which of the
following instruments is not payable to bearer?
a. Pay to the order of Cash.
b. Pay to the order of Jose Rizal, national hero.
c. Pay to Pedro Padernal, bearer.
d. Pay to Pedro Padernal or bearer.
Answer: C
An instrument payable to the order of bearer is an order instrument
which needs the indorsement of the payee (the bearer) for its negotiation.
An instrument payable to bearer P or to P, bearer is not an instrument
payable to bearer because the word bearer is merely descriptive of P.
Accordingly, the instrument is not negotiable because it is payable to a
specified person.
Auditing Theory:
Documentation
3.

Audit

Objectives,

Procedures,

Evidence

and

The physical count of inventory of a retailer was higher than shown by the
perpetual records. Which of the following could explain the difference?
a. Inventory items had been counted but the tags placed on the items
had not been taken off the items and added to the inventory
accumulation sheets.
b. An item purchased FOB Shipping Point had not arrived yet at the date
of the inventory cunt and had not been reflected in the perpetual
records.
c. Credit memos for several items returned by customers had not been
recorded.
d. No journal entry had been made on the retailers books for several
items returned to its suppliers.
Answer: C
Items returned vy customers for which credit memos have not been
prepared and recorded will be reflected in the physical inventory but not in
the perpetual inventory records.
Answer A is incorrect because the physical count will be understated if
items counted are not added to the inventory accumulation sheets.
Answer B is incorrect because both the physical count and perpetual
inventory records will be understated if the item purchased FOB Shipping
Point has not arrived at the count date and no entry has been made in
the perpetual records.
Answer D is ncorrect because the perpetual inventory records will be
overstated if no entry has been for items returned to suppliers.

Taxation: Income Taxation

4. The share of a partner in the profits of a genral professional partnership is
regarded as received by him and thus taxable although not yet
distributed. This principle is known as
a. Advance reporting of income

b. Actual receipt of income

c. Accrual method of accounting
d. Constructive receipt of income
Answer: D
The share of partners in the net income of GPP is taxable to the partners
as ordinary income, whether distributed to them or not. Income payments
to partners in GPP in the form of drawings, advances, allowances, stipends
etc are subject to CWT of 15% if the income payment to the partner for
the current year exceeds P 720,000 and 10% otherwise.
MS: Responsibility Accounting, Performance Measurement and Transfer
Pricing
5. Division Uno of Palpac Company is currently operating at full capacity of
5,000 units. It sells all its production in a perfectly competitive market for
P 250 per unit. Its variable cost is P 170 per unit, while its total fixed cost
amounts to P 300,000.
The minimum transfer price that should be charged to Division Dos of
Palpac Company for each unit of product transferred by Division Uno is
a. P 230
c. P 250
b. P 170
d. P 470
Answer: C
In a perfectly competitive market, the market price is the appropriate
transfer price.
If there is no competitive market, the appropriate transfer price s the
Variable cost per unit and opportunity cost if there is any.
Practical Accounting I: Cash and Cash Equivalents
6. Gapasin Company had the following account balances on December 31,
2013:
Petty Cash Fund
Cash on Hand

50,000
500,000

Cash in Bank Current Account

4,000,000
Cash in Bank Payroll Account
1,000,000
Time Deposit, three months, maturing January 31, 2014
2,000,000
Cash in Bank Restricted account for plant addition, expected to
Be disbursed in 2014
500,000
Cash in sinking fund set aside for nond payable due June 30, 2014
1,500,000
The petty cash fund included unreplenished December 2013 petty cash
expense vouchers of P 5,000 and employee IOU of P 5,000. The cash on
hand included a P 100,000 check payable to the enity dated January 31,
2014. In exchange for a guaranteed line of credit, the entity has agreed to
maintain a minimum balance of P 200,000 in the unrestricted current bank

account. What amount should be reported as Cash on December 31,

2013?
a. P 6,940,000
b.
8,940,000
c.
7,940,000
d.
7,440,000
Answer: A
Petty Cash Fund (P 50,000- P P10,000)
Cash on Hand (P 500,000 P 100,000)

40,000
400,000

Cash in Bank Current Account

4,000,000
Cash in Bank Payroll Account
1,000,000
Cash in sinking fund set aside for Bond payable due June 30, 2014
1,500,000
Cash
P
6,940,000
Business Law: Obligation
7. Bryan Gapasin is obliged to pay Algen Gomez P 10,000,000 on or before
June 15. Algen Gomez is obliged to pay Bryan Gapasin P 10,000,000 on
June 30. Who may claim compensation on June 15?
a. Bryan Gapasin
b. Algen Gomez
c. Either Bryan or Algen
d. Neither Bryan nor Algen
Answer: D
Practical Accounting I: SMEs
8. What is the ceiling threshold for a SME?
a.
b.
c.
d.

Total Assets
250,000
300,000
350,000
350,000

Total Liabilities
350,000
250,000
300,000
250,000

Answer: D
One of the items in the actual CPA Board Exam
Taxation: General Principles
9. Police power as distinguished from taxation
a. Just compensation is received by the owner of the property.
b. Maybe exercised by private individuals.
c. Superior to the non-impairment clause of the constitution.
d. Property is taken by the government for public purpose.

Answer: C
The provision No Law impairing the obligations of contracts shall be
passed is a constitutional limitation on the exercise of the power of
taxation. Thus, taxation is inferior to the non-impairment clause of the
constitution.
However, the exercise of police power can override the non-impairment
clause.
Theory of Accounts: Conceptual Framework
10.Which is true concerning the Conceptual Framework for Financial
Reporting?
a. The Conceptual Framework is a reporting standard and therefore
defines standard for any particular measurement or disclosure issue.
b. The Conceptual Framework is concerned with general purpose financial
statements including consolidated financial statements.
c. In case of conflict, the requirements of the Conceptual Framework
prevail over those of the relevant PFRS.
d. All of these statements are true.
Answer: B
A is incorrect CF is not a standard. C is incorrect because PFRS prevail over
CF.

Tie-Breaking Questions
Auditing Theory: Risk Assessments and Internal Control
1. An
a.
b.
c.
d.

auditor assesses control risk in terms of

Types of potential fraud
Financial statement assertions
Specific control activities
Control environment elements

Answer: B
The assessment of control risk is the process of evaluating the
effectiveness of an entitys internal control in preventing or detecting and
correcting material misstatements. Control risk is assessed in terms of
financial statement assertions.
Theory of Accounts:
2. Disclosure of information about key sources of estimation uncertainty and
judgements
a. Is voluntary
b. Is mandatory
c. Is either voluntary or mandatory
d. Depends on the industry
Answer: B
Theory of Accounts: Conceptual Framework
3. Which of the following is not an underlying assumption of financial
statements?
a. Going Concern
b. Accounting Entity
c. Time Period
d. Accrual
Answer: D
New assumptions include going concern, accounting entity, time period
and monetary unit.
Old assumptions include Accrual and Going concern.
Business Taxation: Income Taxation
4. No law granting any tax exemption shall be passed without the
concurrence of
a. Majority of all members of the Congress
b. 2/3 vote of all members of the Congress
c. vote of all members of the Congress
d. Unanimous vote of all members of the Congress
Answer: A
Absolute majority of the entire membership of Congress is required to
grant tax exemption because a tax exemption results to a loss of revenue
to the government.

Theory of Accounts: Presentation of Financial Statements

5. Under IFRS, the correct order to present current assets is
a. Cash, Accounts Receivable, Prepaid Items, Inventories.
b. Inventories, Accounts Receivable, Prepaid Items, Cash
c. Cash, Inventories, Accounts Receivable, Prepaid Items
d. Inventories , Prepaid Items, Accounts Receivable, Cash
Answer: B
Local GAAP, Cash, AR, Inventories and Prepaid Items.
MS: Standard Cost Variance Analysis
6. Information on Pacho Companys material costs for October 2014 is as
follows:
Actual Cost of Direct Materials
Actual Quantity of Direct Materials
Purchased and Used
Standard Quantity of Direct Materials
Allowed for October production
Direct Materials Efficiency Variance

126,000
45,000 pieces
43,500 pieces
4,500 unfavorable

For the month of October, what was Pachos direct materials spending
variance?
a. P 4,200 Unfavorable
c. P 9,000 Favorable
b. P 4,200 Favorable
d. P 9,000 Unfavorable
Answer: C
Spending Variance or Price or Rate Variance is the difference in prices.
It is computed by multiplying the difference in price to the actual quantity.
Spending Variance
Actual Price (P 126,000/ 45,000 pieces)
Standard Price (See Computation Below)
Difference in Price
X Actual Quantity
Spending Variance
Favorable

P
3.00
0.20
45,000
P

2.80

9,000

Efficiency Variance = (AQ SQ) x SP

4,500 U
= (45,000 43,500) x SP
4,500 U
= 1,500 SP
Standard Price
= P 3.00
Forward Contracts: Hedging a Forecast Purchase Transaction A Cash
Flow Hedge

4. Anika Claudette Cuisine operates a chain of fine seafood restaurants. The

Company makes very detailed long-term planning. On October 1, 2015,
Anika Claudette determined that it would need to purchase 1,000,000
pounds of deluxe fish, on October 1, the company negotiated a special
forward contract with Jennelyn Investment Bank for Anika Claudette to
purchase 1,000,000 pounds of deluxe fish on January 2017, at a price of
P16,000,000. The price of deluxe fish was P16 per pound on October 1.
Jennelyn Investment Bank has a staff of financial analysts who specialize
in forecasting fish prices. These analysts are predicting a drop in
worldwide fish prices between October 1, 2015, and January 2017. On
December 31, 2015, the price of a pound of deluxe fish is P20. On
December 31, 2016, the price of a pound of deluxe fish P11. The
appropriate discount rate throughout this period is 10%.
What is the fair value or the forward contract on December 31, 2015?
e.
f.
g.
h.

P4,000,000
P3,636,364
P5,000,000
P4,545,454

Answer: B
Fair Value, December 31, 2015:
October 1, 2015: Original Forward price:
1,000,000

P16

P16,000,000
December 31,2015: Remaining Forward price:
1,000,000 x P20
20,000,000
Fair Value of forward contract, December 31, 2015
P
4,000,000
Divided by: [100% + 10% remaining one year]
1.10
PV of forward contract, 12/31/2015
P
3,636,364