AP/AT Finals Easy

1. The most effective means for the auditor to determine whether a recorded intangible asset possesses the characteristics of an asset is to a. Vouch the purchase by reference to underlying documentation. b. Inquire as to the status of patent applications. c. Evaluate the future revenue-producing capacity of the intangible asset. d. Analyze research and development expenditures to determine that only those expenditures possessing future economic benefit have been capitalized. 2. Tigers Corporation was incorporated in 2010. During 2010, the Company issued 100,000 shares of P1 par
value ordinary shares for P27 per share. During 2011, the Company had the following transactions: 01/02/2011 Issued 10,000 shares of P100 par value cumulative preference shares at par. The preference shares are convertible into five ordinary shares and had a dividend rate of 6%. 03/01/2011 Issued 3,000 ordinary shares for legal service performed. The value of the legal services was P100,000. The shares are actively traded on a stock exchange and valued on 03/01/2011 at P32 per share. 07/01/2011 Issued 40,000 ordinary shares for P42 per share. 10/01/2011 Repurchased 16,000 treasury shares for P34 per share. 12/01/2011 Sold 3,000 treasury shares for P29 per share. 12/31/2011 Declared and paid a dividend of P0.20 per share on ordinary shares and a 6% dividend on the preference shares. During 2010, Tigers Corporation had a profit of P250,000 and paid dividends of P28,000. During 2011, Tigers Corporation had a profit of P380,000. Based on the above information, determine the balance of treasury shares and the unappropriated retained earnings as of December 31, 2011, respectively. (45 secs) Answer: P442,000; P59,000

3. An entity acquired a piece of equipment for P7,500,000 on January 1, 2006. The entity depreciated the asset
on a straight-line basis over its useful life of 10 years. On December 31, 2007, the entity identifies an impairment indicator, and the entity recognizes impairment in accordance with PAS 36 Impairment of Assets of P240,000. On February 28, 2009, when the carrying amount of the equipment is P4,920,000, the machine meets the criteria to be classified as held for sale. The entity estimates the recoverable amount of the asset immediately before the initial classification as held for sale to be P4,600,000. On June 30, 2009, when the asset is still held for sale, fair value less cost to sell increases to P5,300,000. How much is the gain on reversal of impairment loss? (45 secs) Answer: P525,000

4.
I. II. III.

The following statements relate to the RA9298. Which statement is/are true? (10 secs) The Professional Regulation Commission has the authority to remove any member of the Board of Accountancy for negligence, incompetence, or any other just cause. Insanity is not a ground for proceeding against a CPA. No person shall be appointed as a member of the Board of Accountancy unless he has been in the practice of accountancy for at least 3 years, among others.

IV.

After two years, subject to certain conditions, the Board of Accountancy may order the reinstatement of a CPA whose certificate of registration has been revoked.

Answer: III only

5. Which of the following statements about theoretical framework of auditing is(are) incorrect? (10 secs)
I. II.

The data to be audited can be verified Long-term conflicts may exist between managers who prepare the data and auditors who examine the data III. Auditors act on behalf of management IV. An audit benefits the public Answer: II and III only

6. Crazy Company has recognized a provision for lawsuit at P400,000 in its statement of financial position at 31
December 2011. At December 31, 2012, the risk adjusted present value of the best estimate of the amount required to settle the lawsuit is P900,000 but portion of the increase during 2012 included a 7% that is attributable to the unwinding of the discount and the remainder of the increase is attributed to better information becoming available on which to base the estimates. In the statement of comprehensive income for the year ended December 31, 2012, what amount of loss from the lawsuit Crazy Company must disclosed? Answer: P472,000

7. The Minor Company leased a freehold building for 20 years, the useful life of the building, with effect from 1
January 2013. At that date the fair value of the leasehold interest was PHP7.5 million of which PHP6.0 million was attributable to the building. Annual rentals of PHP800,000 are payable in advance on 1 January. How much should Minor recognized as an operating lease expense in the year ended 31 December 2013, according to IAS17 Leases?

ANSWER: P160,000 A land and buildings lease should be separated into its two components: the land component which will usually be classified as an operating lease; and the buildings component which in this case extends to the end of the building's estimated useful life and should be classified as a finance lease. The annual rental is split between the two leases in proportion to the relative fair values of the two leasehold interests. 20% ((PHP7.5 million PHP6.0 million) as a % of PHP7.5 million) of the rental is attributable to the land, so PHP160,000. See IAS17 paragraphs 14-16.

8. 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.

9. This refers to a detailed examination of the utilization of the resources of a company, including the organization structure to carry out objectives, to indicate areas of increased efficiency and possible cost reduction: Answer: Management Audit

10. During the course of your examination of the financial statements of H Co., a new client, for the year ended December 31, 2008, you discover the following: Inventory at January 1, 2008, had been overstated by P3,000. Inventory at December 31, 2008, was understated by P5,000. An insurance policy covering three years had been purchased on January 2, 2007, for P1,500. The entire amount was charged as an expense in 2007. During 2008 the company received a P1,000 cash advance from a customer for merchandise to be manufactured and shipped during 2009. The P1,000 had been credited to sales revenues. The company's gross profit on sales is 50%. Net income reported on the 2008 income statement (before reflecting any adjustments for the above items) is P20,000. The proper net income for 2008 is Answer: P26,500

AVERAGE

1. The engagement partner should take responsibility for the direction, supervision, and performance of the audit engagement in compliance with professional standards and regulatory and legal requirements, and for the auditors report that is issued to be appropriate in the circumstances. Supervision includes the following, except. a. Tracking the progress of the audit engagement. b. Addressing significant issues arising during the audit engagement, considering their significant, and modifying the planned approach appropriately. c. Informing the members of the engagement team of their responsibilities. d. Identifying matters for consultation or consideration by more experienced engagement team members during the audit engagement. 2. On December 31, 2012, the cash account of Bibingka Company shows the following composition: (M =
million) Petty cash fund P0.06M; Cash in bank (payroll fund) P4M; Travel fund P0.30M; Dividend and interest fund P0.50M; Taxes (e.g., income tax, VAT, EWT, among others) fund P0.24M; Cash in bank (current) P6M; Certificates of deposit (terms 90 days) P2M; Certificate of deposit (term 180 days) P3M; Cash in foreign bank (restricted) P1M; Money market fund (60 days) P1M; Money market funds (6 months) P1.8M; Customers check dated January 14, 2013 P0.12M; Customers check dated December 30, 2012 returned for lack of funds P0.08M; A 30-day BSP treasury bill P2M; A 3-year BSP treasury bill acquired three months prior to maturity date P2.4M; Bond sinking fund P1.6M; Preferred redemption fund P0.8M; Contingent fund P0.6M; Insurance fund P0.40M; Fund for acquisition of a machine P1M; Travelers checks P0.12M; Cashiers checks P0.20M; Savings deposit set aside for dividends payable on July 31, 2013 P1M; Pension fund P0.80M; Customers check outstanding for 18 months P0.10M; Savings deposit in closed bank P0.10M. Accounts receivable P1.45M; Loans receivable P0.20M; Installment receivable (which normally due 1 year to two years) P0.60M; Customers accounts reporting credit balances arising from sales returns P0.06M; Advance payment for purchase of merchandise P0.04M; Cash advances to subsidiary P0.80M; Claim from insurance company P0.03M; Subscription receivable due in 60 days

P0.60M; Accrued interest income P0.02M; Deposit on contract bids P6M; Advances to shareholders (collectible in 2014) P2M. What is the correct cash and cash equivalents balance to be reported by the Company on 12/31/ 2012? (45 secs) Answer: P18.820 million

3. Bulalo Ltd. started business early in 2012. During its first nine months, Bulalo Ltd. acquired real estate for the
construction of a building and other facilities. Operating equipment was purchased and installed, and the company began operating activities in October 201 2. The companys accountant, who was not sure how to record some of the transactions, opened a Property ledger account and recorded debits and (credits) to this account as follows: Cost of land purchased as a building site P170,000 Architects fee for design of new building 23,000 Paid for the demotion of an old building on the building site purchased above 28,000 Paid land tax on the real estate purchased as a building site 1,700 Paid excavation costs for the new building 15,000 Made the first payment to the building contractor 250,000 Paid for equipment to be installed in the new building 148,000 Received from sale of salvaged materials from demolishing the old building (6,800) Made final payment to the building contractor 350,000 Paid interest on building loan during construction 22,000 Paid freight on equipment purchased 1,900 Paid installation costs of equipment 4,200 Paid for repair of equipment damaged during installation 2,700 Property ledger account balance P1,009,700 Compute for the cost of Land and Building, respectively. (45 secs) Answer: P192,900; P660,000

4. The JP Inc. operations resulted to regular corporate income tax (RCIT) amounting to P25,000, with the
minimum corporate income tax (MCIT) computed at P100,000. It is the first time that JP will be paying MCIT after operating for 7 years. The RCIT rate is 30% while MCIT rate is 2%. If JP expects that the company will be liable to MCIT for the next 3 years, deferred tax asset to be recognized on the balance sheet for the year will be (10 secs) Answer: P -0

5. What PSA refer to Forming an Opinion and Reporting on Financial Statements?

Answer: PSA 700

6. The risk of losing business because of negative public opinion and consequential damage to the banks
reputation arising from failure to properly manage some of the above risks, or from involvement in improper or illegal activities by the bank or its senior management, such as money laundering or attempts to cover up losses.

Answer: Reputational

7. On December 31, 2008, Lakeside Co. shows the following account for machinery it had assembled for its own use during 2008:

Account: MACHINERY (Job Order #14344) Item Cost of dismantling old machine Cash proceeds from sale of old machine Raw materials used in construction of new machine Labor on construction of new machine Cost of installation Materials spoiled in machine trial runs Profit on construction Purchase of machine tools 76,000 49,000 11,200 2,400 24,000 13,000 Debit P14,480 P12,000 Credit

An analysis of the details in the account disclosed the following: a. The old machine, which was removed before the installation of the new one, had been fully depreciated. b. Cash discounts received on the payments for materials used in construction totaled P3,000, and these were reported in the purchase discounts account. c. The factory overhead account shows a balance of P292,000 for the year ended December 31,2008; this balance exceeds normal overhead on regular plant activities by approximately P16,900 and is attributable to machine construction. d. A profit was recognized on construction for the difference between costs incurred and the price at which the machine could have been purchased. The adjusted cost of the machinery is

Answer: P152,500
8. The January 1, 2012 balance sheet of Go Company shows:

2012 Accounts receivable P2,000,000 Allowance for doubtful accounts 100,000 Additional information for 2012: a. Cash sales of the Company amount to P800,000 and represent 10% of gross sales. b. 90% of the credit sales customers did not take advantage of the 5/10, n/30 terms. c. Customer who did not take advantage of the discount paid P5,940,000. d. It is expected that cash discounts of P10,000 will be taken on accounts receivable outstanding at 12/31/12. e. Sales returns in 2012 amounted to P80,000. All returns were from charge sales.

f.

During 2012, accounts totaling P60, 000 were written-off as uncollectible. Recoveries during the year amounted to P10,000. This amount is not included in the foregoing collections. g. The allowance for doubtful accounts is adjusted so that it represents a certain percentage of the outstanding accounts receivable at year-end. On December 31, 2012, how much should be reported in the statement of financial position for the NRV of Receivables? (60 secs) Answer: P2,270,000

9. On December 31, 2012, Rebecca Rose Corporation acquired the following three intangible assets:

A trademark for P300,000. The trademark has 7 years remaining legal life. It is anticipated that the trademark will be renewed in the future, indefinitely, without problem. Goodwill for P1,500,000. The goodwill is associated with Rebecca Roses Hayo Manufacturing reporting unit. A customer list for P220,000. By contract, Rebecca Rose has exclusive use of the list for5 years. Because of market conditions, it is expected that the list will have economic value for just 3 years.

On December 31, 2013, before any adjusting entries for the year were made, the following information was assembled about each of the intangible assets: a) Because of a decline in the economy, trademark is now expected to generate cash flows of just P10,000 per year. The useful life of trademark still extends beyond the foreseeable horizon. b) The cash flows expected to be generated by the Hayo Manufacturing reporting unit is P250,000 per year for the next 22 years. Book values and fair values of the assets and liabilities of the Hayo Manufacturing reporting unit are as follows: Book values Identifiable assets Goodwill Liabilities P2,700,000 1,500,000 1,800,000 Fair values P3,000,000 ? 1,800,000

c) The cash flows expected to be generated by the customers list are P120,000 in 2014 and P80,000 in 2015. Assume that the appropriate discount rate for all items is 6% Impairment loss for the year 2013 Answer: P133,333 10. A registered professional shall be permanently exempted from CPE requirements upon reaching the age of

Answer: 65 years old

Difficult 1. Part I of SRC Rule 68, as amended, deals with the general financial reporting requirements of the SEC to the following entities. Which of the following is(are) correct in relation to the threshold that must be met? (10 secs) I. Branch offices of non-stock corporation Total assets (in equivalent amount) of P1M or more II. Non-stock corporation Total Assets of P500,000 or more. III. Regional operating headquarters of foreign corporation Total Revenue P1M or more IV. Stock corporation Paid up Capital of P 50,000 or more V. Non-stock corporation Gross Annual Receipts of P100,000 or more. Answer: I, II, III, IV and V

2. In planning the portions of the audit which may be affected by the clients CIS environment, the auditor should obtain an understanding of the significance and complexity of the CIS activities and the availability of data for use in the audit. The following relate to the complexity of CIS activities. (Select exception/s) (10 secs) I. Material financial statement assertions are affected by the computer processing II. Transactions are exchanged electronically with other organizations III. Complicated computation of financial information are performed by the computer and/or material transactions or entries are generated automatically without independent validation IV. The volume of transactions is such that users would find it difficult to identify and correct errors in processing.

Answer: I only 3. _______________ is the world's largest anti-fraud organization and premier provider of anti-fraud training and education. (no abbreviation) Answer: Association of Certified Fraud Examiners (ACFE). 4. Harvey Specter and Mike Ross were partners of Specter Ross SUITS Partnership. Shortly before the close of 2012 their bookkeeper left suddenly, and they disagreed about the manner of distributing 2012s net loss from operations, which amounted to P 3,380 before consideration of interest (the partners agree that the rate is 5%), salaries or drawings. They ask you to arbitrate the matter. You believed that the best evidence of their understanding is the manner in which the distribution of earnings was made in earlier years. The partners agree that the division of the 2011 net income of P 48,990 was made in accordance with their understanding of their profit-sharing agreement. The partners capital accounts for years 2011 and 2012 are shown below: Specter, capital 12,000 Jan. 1, 2011 3,930 July 1, 2011 130,000 Dec. 31, 2011 P 145,930 Jan. 1, 2012 P

Dec. 31, 2011 Salary Dec. 31, 2011 Drawings Balance

Balance Investment Net income Balance

P 120,000 4,800 21,130 P 145,930 130,000

Sept. 1, 2012

Investment

3,600

May 1, 2011 Excess withdrawal Dec. 31, 2011 Salary Dec. 31, 2011 Drawings Balance

Ross, capital 6,000 Jan. 1, 2011 Balance P 180,000 16,000 Nov. 1, 2011 Investment 6,000 2,660 Dec. 31, 2011 Net income 27,860 189,200 P 213,860 P 213,860 Jan. 1, 2012 Balance 189,200 How should the loss for 2012 be divided between Harvey Specter and Mike Ross, respectively. (150 secs) P Answer: (P5,140); P1,760 5. Tigers Corporation was incorporated in 2010. During 2010, the Company issued 100,000 shares of P1 par value ordinary shares for P27 per share. During 2011, the Company had the following transactions: 01/02/2011 Issued 10,000 shares of P100 par value cumulative preference shares at par. The preference shares are convertible into five ordinary shares and had a dividend rate of 6%. 03/01/2011 Issued 3,000 ordinary shares for legal service performed. The value of the legal services was P100,000. The shares are actively traded on a stock exchange and valued on 03/01/2011 at P32 per share. 07/01/2011 Issued 40,000 ordinary shares for P42 per share. 10/01/2011 Repurchased 16,000 treasury shares for P34 per share. 12/01/2011 Sold 3,000 treasury shares for P29 per share. 12/31/2011 Declared and paid a dividend of P0.20 per share on ordinary shares and a 6% dividend on the preference shares. During 2010, Tigers Corporation had a profit of P250,000 and paid dividends of P28,000. During 2011, Tigers Corporation had a profit of P380,000. Based on the above information, determine the balance of Share premium Preference share conversion privilege and total equity as of December 31, 2011, respectively. (45 secs)

Answer: P -0- ; P5,535,000 6. Unicorn Enterprises loaned P1,000,000 to Arcee Inc. on January 1, 2010. The term of the loan require principal payments of P200,000 each year for 5 years plus interest at 8%. The first principal payment is due on January 1, 2011. Arcee made the required payments during 2011 and 2012. However, during 2012 Arcee began to experience financial difficulties, requiring Unicorn to reassess the collectability of the loan. On December 31, 2012, Unicorn determines that the remaining principal payments will be collected, but the collection of interest is unlikey. The prevailing interest rate for similar type of note as of December 31, 2012 is 10%. How much should be recognized as loan impairment loss in 2012 profit or loss and the amount of interest revenue for 2013? (Roundoff PV factors to four decimal places) (60 secs) Answer: P43,360 ; P28,531

7. HARPER LEE TRADING CORPORATION is in the process of filing an insurance claim in connection
with a fire on September 15, 2013 that destroyed its inventory and accounting records. As the external auditor of the company, you were requested the company to determine the amount of loss and in filing the said insurance claim. You obtained the following information based on your investigation:

a.

Inventory as reported in the latest annual financial statements, dated December 31, 2012 amounted to P632,369.40 this amount is based on the physical inventory count conducted by the Harper Lee under you observation on December 31,2012. Accounts payable and accounts receivable as reported in the latest annual financial statements amounted to P330,319.23 and P405,027.54. Unpaid open invoices due to the suppliers as of the date of the fire were ascertained to be P380,836.11. All sales are on account and unpaid open invoices due from customer as of the date of the fire were ascertained to be P321,435.75. Payments to vendors from December 31,2012 to the date of the fire totaled to P1,925,614.68 while total collections on receivables during the same inclusive dates totaled to P2,628,586.50. Almost all the merchandise items are sold at approximately 30% in excess of cost. As at September 15, 2013, the total cost of inventory items not destroyed by the fire amounted to P434,646.99. The annual premium of P23,640 on the insurance carried was due and paid on January 1, 2012. The policy, which has a face amount of P465,000 carries an 80% coinsurance clause (applied to the estimated book value of inventories on the date of the fire.) What is the estimated amount to be recovered from the insurance company? ANSWER: 193,060.65 (Recoverable amount + [(Face of policy/ Co-insurance requirement)*Fire Loss]

b. c. d. e. f. g.

8. The accounts shown below (with normal balances) appear in the trial balance of Blue Eagles, Inc. on September 30, 2011, end of the accounting year. Preference shares authorized. P100 par P 5,000,000 Ordinary shares authorized. P10 par 2,000,000 Unissued Preference shares 1,800,000 Unissued Ordinary shares 1,000,000 Subscription receivable, Ordinary share 180,000 Subscription receivable, Preference share 190,000 Notes receivable 224,650 Accumulated depreciation Property, Plant and Equipment 1,234,550 Preference shares subscribed 100,000 Ordinary shares subscribed 200,000 Mortgage payable 980,230 Share premium Ordinary 600,000 Share premium Preference 200,000 Share premium Treasury 50,000 Accumulated profits and losses 2,000,000 Treasury shares Ordinary (10,000 shares at cost) 680,000 Revaluation Surplus 371,000

The share subscriptions are scheduled to be collected on the following dates:

Ordinary Proportion P 100,000 50,000 30,000 180,000 Due Date Nov. 27, 2011 Aug. 21, 2012 Oct. 11,20112 P Preference Proportion 60,000 130,000 190,000 Due Date Sept. 20, 2012 Oct. 8, 2012

Based on the above information, determine the total Reserves as of September 30, 2011. (30 secs)

Answer: P1,901,000

9.

On March 1, 2012, Return Corporation purchased 8% P30,000,000 bonds of Die Company when the market interest in purchasing this type of bonds was 11% without incurring any cost. The bonds pay interest annually every December 31 and mature on December 2016. As one of the few entities who early adopted the revised standard for financial instruments, the company opted not to use the fair value option for debt instruments under PFRS 9 after meeting the requirements in measuring the financial asset at amortized cost. Transaction costs incurred by Return Corporation amounted to P1,024,904. The effective rate if the transaction costs were capitalized is 10%. The market rate at December 31, 2012 for this type of instrument was 9%. Determine the amount of transaction costs amortized in 2012. (60 secs) (Round off PV factors in four decimal places) Answer: P890,276

10. The term _________ is generally used at present to refer to a set of incomplete or unaudited financial statements accompanied by a report of an eternal auditor who has not yet completed his audit of such financial statements.

Answer: Tentative FS