Average Round

Auditing
1. Which of the following is most likely to be an overall response to fraud risks
identified in an audit?
a. Supervise members of the audit team less closely and rely more upon judgment
b. Use less predictable audit procedures
c. only use certified public accountants on the engagement
d. Place increased emphasis on the audit of objective transactions rather than
subjective transactions.

Answer: b. Use less predictable audit procedures

Advanced Financial Accounting and Reporting

2. JSAMMS Foods, Inc. charges new franchisees an initial fee of P2,500,000. Of this
amount, P1,000,000 is payable in cash when the agreement is signed, and the
remainder is to be paid in four equal annual installments through the issuance of 12%
interest-bearing notes. In consideration thereof, JSAMMS Foods promises to assist
the franchisee in locating the business site; in conducting market study to estimate
earnings potential; in supervising the construction of a building; and in the initial
training of management and employees. The agreement also includes the monthly
payment by the franchisee of continuing franchise fees calculated at 3% of the
franchisee's monthly gross sales revenues.
On July 1, 2019, JSAMMS foods entered into a franchising agreement with a known
retailer, PRETES' Specialties. JSAMMS foods had completed all of the initial services
required at a cost of P800,000. Indirect expenses were P18,000 in 2019. PRETES'
Specialties had started operations on November 2, 2019 with a total sales revenue of
P450,400 from its 2019 operation. It was ascertained that collection of the notes
provided by PRETES' Specialties is reasonably assured.
Compute the net income reported by JSAMMS Foods from the PRETES' Specialties
in 2019?

Answer: P1,785,512

Solutions:
Initial Fee 2,500,000
Direct Cost (800,000)
Indirect Expense (18,000)
Continuing Franchise Fee 13,512
1,500,000 x 12% x 6/12 =
Interest Income 90,000 * 90,000
Net Income 1,785,512
Management Advisory Services
3. Consider the following information for Richardson Company for prior year
The company produces 1,000 units and sold 900 units, both as budgeted.
There were no beginning or ending work in process inventories and no beginning
finished goods inventory
Budgeted and actual fixed costs were equal, all variable manufacturing costs were
affected by production volume only, and all variable selling costs were affected by
sales volume only.
Budgeted per unit revenues and costs were as follows:
Per unit
Sales price P100
Direct materials 30
Direct labor 20
Other variable 10
Fixed selling costs 5
Variable selling costs 12
Fixed selling costs (P33,600
total) 4
Fixed administrative ( P1,800
total) 2

The contribution margin earned by Richardson Company for the prior years was

Answer: P25,200

Solutions: 100-30-20-10-12=28 CM x 900units = P25,200

Taxation

4. Anana, single, is a minimum wage earner. In addition to his basic minimum wage of
P180,000 for 2018, he also received the following benefits:

De minimis, P140,000 (P20,000 over the ceiling)

13th month pay and other benefits, P70,000

How much is the income tax due of Pedro in 2018 assuming he also earned
P250,000?

Answer: ZERO (0)

Regulatory Framework for Business Transactions

5. Dominico and Domingo are jointly and severally liable to Crispino for P100,000.00.
The obligation is due on June 30, 2019. On June 15, 2019, Dominico paid the whole
amount of the note to Crispino. If Domingo reimburses Dominico on July 15, 2019.
Dominico is entitle to receive from Domingo:
a. P50,000 plus interest from June 25 to July 15, 2019.
b. P50,000 plus interest from June 25 to June 30, 2019.
c. P50,000 plus interest from June 30 to July 15,2019.
d. P50,000 with no interest because Dominico paid the note before due date.

Answer: c. P50,000 plus interest from June 30 to July 15,2019.