AT QUIZ 2

Which of the following is not one of the subcomponents of the control environment?

A.
Commitment to competence

B.
Adequate separation of duties

C.
Management’s philosophy and operating style

D.
Organizational structure.

Control activity component of internal control

A.
Consists of the policies and procedures that help ensure that management directives are carried out

B.
Includes the governance and management functions and the attitudes, awareness, and actions of
those charged with governance and management concerning the entity’s internal control and its
importance in the entity

C.
Consists of the procedures and records established to initiate, authorize, record, process, and report
entity transactions, events and conditions and to maintain accountability for the related assets,
liabilities, and equity.

D.
Is the entity’s process for identifying business risks relevant to financial reporting objectives and
deciding about actions to address those risks, and the results thereof

An auditor obtains knowledge about a new client's business and its industry in order to

A.
Develop an attitude of professional skepticism concerning management's financial statement
assertions

B.
Understand the events and transactions that may have an effect on the client's financial statements

C.
Evaluate whether the aggregation of known misstatements causes the financial statements taken as a
whole to be materially misstated

D.
Make constructive suggestions concerning improvements to the client's internal control structure

An understanding of a client’s business and industry and knowledge about operations are essential for
performing an adequate audit. For a new client, most of this information is obtained

A.
from the permanent file

B.
from the Securities and Exchange Commission

C.
from the predecessor auditor

D.
all of the choices

Which of the following professionals has primary responsibility for the performance of an audit?

A.
The managing partner of the firm

B.
The partner in charge of the engagement

C.
The manager assigned to the engagement

D.
The senior assigned to the engagement

When the auditor attempts to understand the operation of the accounting system by tracing a few
transactions through the accounting system, the auditor is said to be:

A.
tracing.

B.
vouching
C.
testing controls

D.
performing a walk-through.

Initial audit planning involves four matters. Which of the following is not one of these?

A.
Request that bank balances be confirmed

B.
Schedule engagement staff and audit specialists

C.
Identify the client’s reason for the audit

D.
Develop an overall audit strategy

The basic concept of internal control which recognizes that the cost of internal control should not
exceed the benefits expected to be derived is known as

A.
Limited liability

B.
Management by exception.

C.
Management responsibility.

D.
Reasonable assurance

In planning an audit engagement, the auditor is required to develop and document a(an)

I. Audit Plan

II. Flowchart

III. Overall Audit Strategy

B.
Both II and III

C.
Both I and II

D.
Both I and III

Which of the following risks of material misstatement relating to cash pertains to completeness
assertion?

A.
Cash is overstated because the entity has lost right to recorded cash.

B.
Cash is misstated because bank accounts denominated in a foreign currency have been translated
using the incorrect exchange rate

C.
Cash is overstated because of recorded fictitious, overstated receipts, or has been stolen

D.
Cash is understated because not all bank accounts and receipts have been recorded

FAR 2

Which statement is incorrect regarding measurement of fair value of investment property on the
basis of a valuation by an independent valuer who holds a recognized and relevant professional
qualification and has recent experience in the location and category of the investment property being
valued?

A.
An entity need not disclose the fact the fair value of investment property is not determined on that
basis.

B.
An entity shall disclose the extent to which the fair value of investment property is determined on
that basis

C.
None of the choices
D.
An entity is encouraged, but not required, to measure the fair value of investment property on that
basis.

Which of the following distinguishes investment property from owner occupied-property?

A.
Investment property is held to earn rentals

B.
Investment property is normally classified as a noncurrent asset

C.
Investment property does not generate cash flows largely independently of the other assets held by
an entity

D.
Investment property generates cash flows largely independently of the other assets held by an entity

Campbell Corp. exchanged delivery trucks with Highway, Inc. Campbell’s truck originally cost
P2,300,000, its accumulated depreciation was P2,000,000, and its fair value was P500,000. 
Highway’s truck originally cost P2,350,000, its accumulated depreciation was P1,990,000, and its
fair value was P570,000.  Campbell also paid Highway P70,000 in cash as part of the transaction. 
The transaction lacks commercial substance.  What amount is the new book value for the truck
Campbell received?

ANS: P370,000

The Shop Company sells TVs.  The perpetual inventory was stated as P305,000 on the books at
December 31, 2017.  At the close of the year, a new approach for compiling inventory was used
and apparently a satisfactory cut-off for preparation of financial statements was not made.  Some
events that occurred are as follows.
a)   TVs shipped to a customer January 2, 2018, costing P50,000 were included in inventory at
December 31, 2017.  The sale was recorded in 2018.
b)  TVs costing P100,000 received December 30, 2017, were recorded as received on January 2,
2018.
c)   TVs received during 2017 costing P46,000 were recorded twice in the inventory account.
d)  TVs shipped to a customer December 28, 2017, f.o.b. shipping point, which cost P150,000,
were not received by the customer until January, 2018.  The TVs were included in the ending
inventory.
e)  TVs on hand that cost P61,000 were never recorded on the books.
 
Compute the correct inventory at December 31, 2017

ANS: P270,000
According to PAS 38 Intangible assets, which of the following statements about research and
development expenditure is incorrect?
ANS: Development expenditure recognized as an asset must be amortized over a period not
exceeding 5 years

In the 30 June 2017 annual report of Johnston Ltd, the equipment was reported as follows:

The equipment consisted of two machines, machine A and machine B.  Machine A had cost
P3,000,000 and had a carrying amount of P1,800,000 at 30 June 2017, while machine B had cost
P2,000,000 and was carried at P1,700,000.  Both machines are measured using the cost model,
and depreciated on a straight-line basis over a ten-year period.
 
On 31 December 2017, the directors of Johnston Ltd decided to change the basis of measuring
the equipment from the cost model to the revaluation model.  Machine A was revalued to
P1,800,000 with an expected useful life of six years, and machine B was revalued to P1,550,000
with an expected useful life of five years.
 
The amount to be recognized in profit or loss as a result of the revaluation of assets on December
31, 2017 is
ANS: P(50,000)

Bensol Co. and Sable Co. exchanged similar trucks with fair values in excess of carrying amounts.
In addition, Bensol paid Sable to compensate for the difference in truck values. As a consequence
of the exchange, Sable recognizes

A.
Neither a gain nor a loss

B.
A gain determined by the proportion of cash received to the total consideration

C.
A loss determined by the proportion of cash received to the total consideration

D.
A gain equal to the difference between the fair value and carrying amount of the truck given up

ANS: A gain equal to the difference between the fair value and carrying amount of the truck given
up

On January 1, 2015, Sunflower Company purchased for P240,000 a machine with a useful life of
ten years and no salvage value.  The machine was depreciated by the double-declining balance
method and the carrying amount of the machine was P153,600 on December 31, 2016.  Sunflower
changed to the straight-line method on January 1, 2017.  Sunflower can justify the change.  What
should be the depreciation expense on this machine for the year ended December 31, 2017?
ANS: P19,200
TAX QUIZ 2

Statement 1: Partners of GPPs are allowed to avail the 8% income tax rate.

Statement 2: Individuals enjoying income tax exemption such as those registered under BMBE
are not allowed to avail the 8% income tax rate.

A.
Only statement 1 is correct

B.
Both statements are incorrect

C.
Both statements are correct

D.
Only statement 2 is correct

ANS: Only statement 2 is correct

In 2018, Alpha Corporation provided a fringe benefit to one of its executives, Chris, amounting to
P78,000

Assume the fringe benefit is in the form of housing benefit (rental payment), how much is the
correct amount of fringe benefit tax?

A.
P78,000

B.
P21,000

C.
P39,000

D.
P60,000

ANS: P21,000

Ana realized the following income and expenses during 2018 taxable year:

Assuming the same data in the immediately preceding number except that Ana is a vat-registered
taxpayer, how much is her total income tax for the year?

A.
P224,000

B.
P259,000

C.
P279,000

D.
P340,000

First Statement: An individual earning compensation income of P2,000,000 in 2018 shall have the
option of availing the optional 8% income tax.
Second Statement: Beginning 2018 taxable year, an individual who opted to pay the 8% income
tax is also exempt from the 3% other percentage tax under Section 116 of the Tax Code

ANS: false, true

Mr. Mapalad realized the following income and expenses during 2018 taxable year:

Assume Mr. Mapagpala signified his intention to be taxed at 8%, his total income tax expense
during 2018 taxable year should be
ANS: 595K

Ana, not a minimum wage earner, works for Maharlika Corporation.  She earned compensation
income of P240,000 in 2018.  Aside from her basic pay, she also earned P140,000 consisting of
P80,000 overtime pay, P30,000 night shift differential, P15,000 hazard pay, and P15,000 holiday
pay.  She also contributed to the SSS, Philhealth, and HDMF amounting to P5,000 and has
received a 13th month pay of P11,000.   Ana’s income tax due for the taxable year should be
ANS; 26K

Royalty income from books received by a corporation beginning January 1, 2018 or upon
effectivity of the TRAIN Law shall be subject to: DC RFC NRFC
ANS: 20% 20% 30%

Which of the following statements regarding minimum wage earner (MWE) is correct?
The MWE is exempt from income tax on his basic statutory minimum wage (SMW).

B.
The MWE is subject to income tax other than his basic statutory minimum wage and on his
overtime pay, holiday pay, night shift differential and hazard pay
C.
The MWE is exempt from income tax on his overtime pay, holiday pay, night shift differential, and
hazard pay

D.
All of the choices

MAS 3

Everest Company uses a standard cost system. The following budget, at normal capacity, and
the actual results are summarized for the month of December:

Using the two-way analysis of overhead variance, what is the controllable variance for December?

A.
P5,000 Favorable

B.
P 9,000 Favorable

C.
P3,000 Favorable

D.
P10,500 Unfavorable

Holiday Chemical Company uses a standard cost system to collect costs related to the production
of its “bowling ball” fruitcakes. The direct labor standard for each fruitcake is 1.25 hours at a
standard cost of P11.00 per hour. During the month of November, Holiday's fruitcake production
used 9,820 direct labor hours at a total direct labor cost of P106,547. This resulted in production of
8,500 fruitcakes for November.
What is Holiday's labor rate variance for November?
ANS: P1,473 favorable

Assume that it takes 15 minutes of labor time to crush enough garlic to fill one container of yogurt.
Because the smell of the garlic can be unbearable, workers are given (and they take it!) 10
minutes of break time every hour (i.e., 50 minutes of work, 10 minutes of break). How many
minutes should Stench use as a standard quantity of labor time per container of yogurt?
ANS: 18.0

OMG Corporation makes a single product. Manufacturing overhead is allocated on the basis of
direct labor hours. Actual fixed overhead cost equaled the budgeted fixed overhead cost. The fixed
overhead volume (denominator) variance was unfavorable. Which of the following statements is
correct?
ANS;Actual quantity of product produced was less than the amount of budgeted production

A summary of expected costs for a range of activity levels that is geared to changes in the level of
productive output is the definition of a
ANS; flexible budget

The VHO Corporation, which uses a standard costing system, reported the following cost
variances for the most recent month:
Raw materials price variance U
Raw materials quantity variance U
Direct labor rate variance F
Direct labor efficiency variance U
Variable overhead spending variance U
Variable overhead efficiency variance U
Fixed overhead spending variance U
Fixed overhead volume (denominator) variance U
 
What can be concluded from VHO’s variances?
ANS; Production was below budgeted volume

The Fire Company has a standard absorption and flexible budgeting system and uses a two-way
analysis of overhead variances.  Selected data for the June production activity are:

The budget (controllable) variance for June is

Ferro Enterprises, Inc., uses a standard cost system in which it applies manufacturing overhead to
units of product on the basis of standard direct labor-hours. During the month of September, the
company applied P52,000 in fixed manufacturing overhead cost to units of product. At the end of
the month, manufacturing overhead was overapplied by P3,000. If there was no volume variance
in September, then the budgeted fixed manufacturing overhead cost for the month was:
ANS; P52,000

TAX 2

This is not always an essential element of a contract

A.
Consideration

B.
Object
C.
Form

D.
Consent

Maila made a non-negotiable promissory note with Pia as payee. Pia assigned the note to Aiko,
Aiko assigned the note to Bea; Bea assigned the note to Carmina, Carmina assigned the note to
Helen, and Helen assigned it back to Maila
ANS; Maila's obligation is extinguished by confusion

Marygold, a minor enter into a contract with Riza, an insane in connection with the sale of Rizal
Park for P300,000. Said contract is
ANS: Void

Statement 1. The conveyance of the whole interest of a partner in the partnership of itself
dissolves the partnership. 
Statement 2. The contractual liability of the partners to third persons is joint and subsidiary

ANS;No. 1 is false; No. 2 is true

A, B, C and D are partners where A, B and C contributed P1,000,000 each and D his services. The
partnership is engaged in the manufacture and export of garments. Due to a very strong typhoon,
the entire roofing of the factory was blown by the strong winds and if not repaired immediately
would aggravate the damage. A, B, C and D agreed on an additional contribution of P200,000
each in order to save the business from imminent loss. Which of these is the correct statement?
ANS:If C still has money, but refuses to make the contribution, he can be compelled to sells his
interest in the partnership to the other partners

Statement 1: Payment made in good faith to any person in possession of the credit shall release
the debtor.
Statement 2: Dation in payment, whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of sales
ANS;Both statements are true

Which of the following contract is consensual

A.
Partnership

B.
Deposit

C.
Commodatum

D.
Mutuum

E.
Mortgage
A and B agreed to contribute their respective farms to form a partnership. A immediately delivered
his land. B waited until after 2 months so he could harvest some rice in his farm. What may the
parties do?
ANS; B should deliver the land and the rice he harvested

Which of the following is not allowed in a partnership contract?

The guardian of an insane person sells a house and lot belonging to the latter valued at P100,000
to B, buyer for P74,000 with the approval of the court. The contract is:
ANS: Valid