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ND 2 RFJPIA-R12 Annual Regional Convention 2008 Mock CPA Board Examinations THEORY OF ACCOUNTS 1. Which of the following statements is (are) true, for purposes of financial reporting in the Philippines? I. Philippine practice is to present in the balance sheet current assets before non-current asset...

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RFJPIA-R12 2

ND

Annual Regional Convention 2008 Mock CPA Board Examinations

THEORY OF ACCOUNTS 1. Which of the following statements is (are) true, for purposes of financial reporting in the Philippines? I. Philippine practice is to present in the balance sheet current assets before non-current assets, current liabilities before non-current liabilities; and equity accounts before liabilities II. Notes are normally presented in the following order: Significant accounting policies; statement of compliance of PRFSs; supporting information on items presented on the face of the financial statements; and lastly, other disclosures III. The IAS term ”Reserves” in present Philippine practice, may refer to revaluation increment, translation adjustments recognized in equity; unrealized gains and losses from available for sale securities recognized in equity. a. I and II only b. I and III only c. II and III only d. I, II and III 2. An entity purchases a building and the seller accepts payment partly in equity shares and partly in debentures of the entity. This transaction should be treated in the cash flow statement as follows: a. The purchase of the building should be investing cash outflow and the issuance of shares and the debentures financing cash outflows. b. The purchase of the building should be investing cash outflow and the issuance of debentures financing cash outflows while the issuance of shares investing cash outflow. c. This does not belong in a cash flow statement and should be disclosed only in the notes to the financial statements. d. Ignore the transaction totally since it is a non-cash transaction. No mention is required in either the cash flow statement or anywhere else in the financial statements 3.

The scope of PAS 39 includes all of the following except a. Financial instruments that meet the definition of a financial asset b. Financial instrument that meet the definition of a financial liability c. Financial instruments issued by the entity that meet the definition of an equity instrument d. Contracts to buy or sell non-financial items that can be settled net.

4. Deposits in foreign countries which are subject to a foreign exchange restrictions should be a. Valued at current exchange rates and shown as current assets b. Valued at historical exchange rates and presented as noncurrent assets c. Valued at current exchange rates and presented as noncurrent assets / d. Valued at historical exchange rates and presented as current assets 5. What is the proper accounting for credit card sales if the credit card company is Affiliated with a bank Not affiliated with a bank a. Sale on account Cash sales b. Sale on account Sale on account c. Cash sale Cash sale d. Cash sale Sale on account 6. Losses which are expected to arise from firm and non-cancellable commitments for the future purchase of inventory items, if material should be a. Recognized in the accounts by debiting loss on purchase commitments and crediting estimated liability for loss on purchase commitments b. Disclosed in the notes c. Ignored d. Charged to retained earnings 7. Delta Corp. purchased 7,400 shares of Maiden Company’s common stock and classified it as available-for-sale. The purchase price was P362,000, which is equal to 50% of Maiden Company’s retained earnings balance. Maiden Company’s 46,000 shares of common stock are actively traded. Delta should account for this using the a. Cost method

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b. Equity method c. Cost method subject to fair value valuation in the balance sheet d. Market value method subject to fair value valuation in the balance sheet 8.

Which of the following statements regarding Investment Property is (are) true I. An investment property shall be measured initially at its cost II. Transaction cost shall be included in the initial measurement of investment property III. With certain exceptions, an entity shall choose as its accounting policy either the fair value model or the cost model and shall apply such policy to all its investment property a. I and II only b. I and III only c. II and III only d. I, II and III

9. In determining the fair value of a biological asset for balance sheet purposes, which of the following should be considered? a. Price change b. Physical change c. Both price change and physical change d. Neither price change nor physical change 10. A company acquired some of its own common shares at a price greater than both their par value and original issue price but less than their book value. The company uses the cost method of accounting for treasury stock. What is the impact of this acquisition on total stockholders’ equity (TSE), and the net book value (NBV) per common share? a. SE – decrease ; NBV – increase c. SE – decrease; NBV – decrease b. SE – increase ; NBV – decrease d. SE – increase; NBV - increase 11. What is the measurement basis of an asset that is acquired in non-monetary exchange With commercial substance With no commercial substance a. Fair value of asset given up Carrying amount of asset given up b. Carrying amount of asset given up Carrying amount of asset received c. Carrying amount of asset received Fair value of asset received d. Fair value of asset given up Fair value of asset given up 12. Which of the following statements concerning borrowing costs is false? a. Borrowing costs generally include interest costs, bank overdrafts, amortization of discounts or premiums related to borrowings, finance charges with respect to finance leases. b. Borrowing costs are interest and other costs incurred by an enterprise in relation to borrowed funds. c. Per PAS 23, the benchmark treatment for borrowing costs is to capitalize it as part of the cost of the asset to which it relates. d. Borrowing costs include amortization of ancillary costs incurred in connection with the arrangement of borrowings, as well as exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest cost. 13. Easy Builders Inc. is in the middle of a two-year construction contract when it receives a letter from the customer extending the contract by a year and requiring the construction company to increase its output in proportion of the number of years of the new contract to the previous contract period. This is allowed in recognizing additional revenue according to PAS 11 if a. Negotiations have reached an advanced stage and it is probable that the customer will accept the claim b. The contract is sufficiently advanced and it is probable that the specified performance standards will be exceeded or met. c. It is probable that the customer will approve the variation and the amount of revenue arising from the variation, and the amount of revenue can be reliably measured. d. It is probable that the customer will approve the variation and the amount of revenue arising from the variation, whether the amount of revenue can be reliably measured or not. 14. Under IAS 20, which of the following is permitted in recognizing an intangible asset acquired free of charge, or for nominal consideration, by way of a government grant? I. Recognize both the intangible asset and the grant initially at fair value.

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II. Recognize the asset initially at a nominal amount plus any expenditure that is directly attributable to preparing the asset for its intended use a. I only b. Either I or II, at the option of the acquiring enterprise c. II only d. Neither I nor II 15. PAS 20, Government Grants provide two approaches to accounting for government grants : (1) capitalization approach and (2) income approach. Arguments in support of the income approach include the following except: a. Government grants are considered earned through compliance with the condition and meeting envisaged obligations b. Government grants are receipts from a source other than shareholders or capital providers c. Government grants represent an incentive provided by the government without related costs. d. Government grants are considered as extension of fiscal policies similar to income and other taxes

BUSINESS LAW & TAXATION 16. Holder H altered the amount of a negotiable note from P10,000 to P100,000 then negotiated the note to I. As a result: a. If I is a holder in due course, he can require the maker to pay P100,000 b. If I is not a holder in due course, he can require the maker to pay the sum of P100,000 c. I cannot require the maker to pay because of the forgery whether or not he is a holder in due course d. I is entitled to P10,000 if he is a holder in due course 17. To call a meeting for the purpose of removing a director of a corporation the required votes of the stockholders is: majority of the stockholders present ¾ of the outstanding capital stock 2/3 of the outstanding capital stock majority of the outstanding capital stock 18. Which of the following instruments is negotiable? a. “Pay to Bearer C P10,000.00” b. “Pay to C P10,000.00 or his order out of the rental of my house in Manila”. c. “Pay to C P10,000.00 and reimburse yourself out of the rental of my house in Manila”. d. “Pay to the order of C P10,000.00”. 19. Paolo contributed P50,000; Ronald contributed P75,000; and Paul contributed P25,000. Jay is the industrial partner. There is no stipulation regarding profits and losses. The partnership suffered a P300,000 loss. The loss shall be shared by the partners as follows: a. P100,000; P100,000; P100,000; and P0 b. P75,000; P75,000; P75,000; and P75,000 c. P100,000; P150,000; P50,000; and P0 d. P100,000; P100,000; P100,000; and P100,000 20. Case No. 1 – Pedro, the manager of XYZ Corporation, was promised of an increase in salary. To facilitate the payment of the promised increase, he prepared a board resolution and had it signed individually by a majority of the members of the Board of Directors. The treasurer of the corporation refused to pay the increase in salary stating that the resolution is not valid. Is the contention of the treasurer correct? Case No. 2 – Jose agreed to sell for a 10% commission the land of Maria worth P500,000. Accordingly, Jose looked for a buyer and found Pedro whom he introduced to Maria. Maria however told Jose and Pedro that she is no longer selling her land. Subsequently, Maria sold the land to Pedro for P500,000, without the knowledge of Jose. Jose upon learning of the sale, asked Maria for his commission. Is Jose entitled to the commission? a. YES; YES d. NO; YES b. YES; NO c. NO; NO

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21. 1st Statement – Melody bound herself to pay Lucas her indebtedness. This is evidenced by a promissory note stating therein the words “I promise to pay Lucas or order the amount of Php100,000”. Sgd. Melody. The instrument is non-negotiable. 2nd Statement – Mila gave Malou a check wherein the only item not filled up is the space for the amount. Mila instructed the payee to place the amount Php1,000 in the check. However, Malou placed therein Php100,000. Malou negotiated the check to Marissa who is a holder in due course. Marissa can hold Mila liable for P100,000. a. 1st statement is wrong, 2nd statement is correct b. 1st statement is correct, 2nd statement is wrong. c. Both statements are correct d. Both statements are wrong. 22. Maggie makes a promissory note for P40,000 payable to the order of Homer. Homer negotiates the note to Margie who indorses it to Henry. Henry indorsed the instrument to Melissa who with the consent of Henry raises the amount to P100,000 and thereafter indorses it to Hilary, Hilary to Menandro, and Menandro to Helen, who is a holder in due course. In this case a. Helen can recover P40,000 as against Maggie. b. Helen can recover P100,000 from Maggie. c. Menandro and Melissa are liable to Helen for P40,000 d. Maggie and Homer are not liable to Helen. 23. X-cited Limited partnership has X, as general partner, Y, as limited partner, and Z, as industrial partner contributing P150,000; P500,000; and services respectively. The partnership failed and after disposing all its assets to pay partnership debts there still remains an outstanding obligation in the sum of P120,000. The liability of the partners to the creditor will be as follows: a. X = P120,000 b. X and Z = solidarily liable for P120,000 c. X = P40,00 Y= P40,000 Z= P40,000 d. X = P60,00 Y= P0 Z= P60,000 24. Which among the following statements is not correct? a. The Bureau of Internal Revenue is part of the administrative machinery for the assessment and collection of internal revenue taxes. b. The Bureau of Customs is also charged with the collection of internal revenue taxes. c. The local government units, such as the municipalities, cities and provinces, form part of the national tax system. d. Private banks may be authorized to collect internal revenue taxes. 25. Properties acquired by gratuitous title during the marriage are generally classified as: I. Separate properties under conjugal partnership of gains. II. Community properties under absolute community of properties. a. Only I is correct c. Both I and II are correct b. Only II is correct d. Both I and II are incorrect 26. A resident decedent, head of family, left the following: Personal properties Real properties (including family home valued at P1,500,000) Deductions claimed (including actual funeral expenses of P200,000, and medical expenses of P600,000) How much was the taxable net estate? a. P250,000 b. P1,100,000

c. P1,250,000

27. Marzan sold his residential house under the following terms: Cash received, January 10, 2008 Amount received, June 10, 2008 Installment due, June 10, 2009 Additional information: Cost of residential house Mortgage assumed by the buyer Mortgage on the residential house executed by the buyer in favor of the seller to guarantee payment Fair market value of residential house How much was the capital gains tax due in 2008? a. P15,882 b. P17,647 c. P54,000

P1,000,00 0 2,000,000 900,000 d. P2,100,000

P100,000 100,000 600,000 150,000 200,000 600,000 900,000 d. P60,000

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28. Which of the following government-owned or controlled corporations shall be subject to the corporate income tax? I. Philippine Amusement and Gaming Corporation (PAGCOR). II. National Development Corporation (NDC). III. Philippine Charity Sweepstakes Office (PCSO). IV. Social Security System (SSS). 29. The following fringe benefits were given by an employer to its employees for the quarter ending March 31, 2008: Housing benefits to supervisors and managers (representing total P340,000 rents) Reimbursed expenses of rank and file employees 200,000 De minimis benefits (not exceeding the maximum) 100,000 How much was the fringe benefit tax payable for the quarter? a. P80,000 b. P108,800 c. P160,000 d. P172,800 30. The BIR may compromise payment of internal revenue taxes when: First ground: A reasonable doubt as to the validity of the claim against the taxpayer exists. Second ground: When collection costs do not justify the collection of the tax. a. Both grounds are correct c. Only first ground is correct b. Both grounds are incorrect d. Only second ground is correct

AUDITING THEORY 31. The need for assurance services arises because: a. There is a consonance of interests of the preparer and the user of the financial statements. b. There is a potential bias in providing information. c. Economic transactions are less complex than they were a decade ago. d. Most users today have access to the system that generates the financial statements they use. 32. Which of the following is explicitly included in the Auditor’s responsibility section of the auditor's report? a. Reason for modification of opinion b. “Philippine Financial Reporting Standards“ c. “Philippines Standards on Auditing” d. Division of responsibility with another auditor 33. The term "present fairly, in all material respect", means a. The financial statements conform to GAAP. b. The auditor considers only those matters that are significant to the users of the financial statements. c. The financial statements may still be materially misstated because the auditors may not have discovered the errors. d. The financial statements are accurately prepared. 34. Based on R.A. 9298, how many years can a partner who survived the death or withdrawal of other partner(s) continue to practice under the partnership name after becoming a sole practitioner? a. 1 year b. 2 years c. 3 years d. Indefinite period of time 35. An auditor who discovers that client employees have committed an illegal act that has a material effect on the client's financial statements most likely would withdraw from the engagement if a. The illegal act is violation of generally accepted accounting principles. b. The client does not take the remedial action that the auditor considers necessary. c. The illegal act was committed during a prior year that was not audited. d. The auditor has already assessed control risk at the minimum level. 36. Which of the following statements would least likely appear in an auditor's engagement letter? a. Fees for our services are based on our regular per diem rates, plus travel and other outof-pocket expenses. b. During the course of our audit we may observe opportunities for economy in, or improved controls over, your operations. c. Our engagement is subject to the risk that material errors or fraud, including defalcations, if they exist, will not be detected

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d. After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement. 37. The audit work paper that reflects the major components of an amount reported in the financial statements is the a. Inter-bank transfer schedule b. Carry forward schedule c. Supporting schedule d. Lead schedule 38. a. b. c. d.

Which of the following best describes the primary purpose of audit procedures? To detect errors or fraud To comply with generally accounting principles To gather sufficient, appropriate evidence To verify the accuracy of account balances

39. Analytical procedures used in planning an audit should focus on identifying a. Material weakness in the internal control system. b. The predictability of financial data from individual transactions. c. The various assertions that are embodied in the financial statements d. Areas that may represent specific risks relevant to the audit. 40. a. b. c. d.

As the acceptable level of detection risk decreases, an auditor may change the… Timing of substantive tests; perform them at an interim date rather than at year-end Nature of substantive tests; select from less effective to a more effective procedure. Timing of tests of controls; perform them at several dates rather than at one time Assessment of inherent risk; assume a higher level.

41. The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the a. Audit has been performed by persons having adequate technical training and proficiency as auditors. b. Auditor's system of quality control has been maintained at a high level. c. Results are consistent with the conclusions to be presented in the auditor's report. d. Audit procedures performed are those prescribed in the technical standards. 42. Which of the following acts are considered a fraud? I. Alteration of records or documents. II. Misinterpretation of facts. III. Misappropriation of assets. IV. Recording of transactions without substance. V. Clerical mistakes. a. III b. I and III only c. I, III, and IV only d. All of them 43. When the auditor has to determine the need to use the work of an expert, he would consider the following except: a. The cost of using the services of an expert. b. The quantity and quality of other audit evidence available. c. The materi...