1. SRAW Elimination Questionnaire QM NFJPIAR1CAR.1718

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SRAW Elimination Round EASY (10 items, 3 points per correct answer) Theory 1. RFBT Voluntary renunciation made by the buyer of his right to warranty against eviction where in case the buyer is evicted, the seller is liable to the value of the thing at the time of eviction. a. Waiver intentionada b. Waiver consciente c. Waiver cursunada d. Waiver Inocente CORRECT ANSWER: B

Theory 2. AFAR Under PFRS 15 (effective January 1, 2018), revenue from contracts with customers a. Is recognized when the customer receive the right to receive consideration b. Is recognized even if the contract is wholly unperformed c. Can be recognized even when a contract is still pending d. Cannot be recognized until a contract exists CORRECT ANSWER: D

Problem 3. MAS Consider the following portion of a segmented income statement for the year just ended. Assume that the fixed expenses of Division X include Php30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses: Net Sales Variable Manufacturing Costs Contibution Margin Fixed Expenses (direct and allocated) Loss from operations

Php

100,000 60,000 Php 40,000 50,000 Php (10,000)

What would be the effect on the firm’s operating income if Division X were discontinued? a. Increase of Php 10,000 b. Decrease of Php 40,000 c. Decrease of Php 100,000 d. Decrease of Php 10,000 CORRECT ANSWER: D Solution:

Net Sales Variable Manufacturing Costs Contibution Margin

Php 100,000 60,000 Php 40,000

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Avoidable Fixed Expenses Segment Income

30,000 Php 10,000

Theory 4. Taxation How much advance payment of VAT is required in order to release a refined sugar from the refinery? A. None, sale of refined sugar is always exempt from VAT irrespective of the seller and buyer pursuant to Sec. 109 (A) of the Tax Code, as amended. B. 12% of PhP 1,000 per 50 kg C. The VAT due or payable in the recently concluded taxable year D. 12% of PhP 1,400 per 50 kg CORRECT ANSWER: D Reference:  RR No. 06-15

Problem 5. FAR David Co.'s beginning inventory at January 1, 2017, was understated by P26,000, and its ending inventory was overstated by P52,000. As a result, Bren's cost of goods sold for 2017 was a. Understated by P26,000. b. Overstated by P26,000. c. Understated by P78,000. d. Overstated by P78,000. CORRECT ANSWER: C Solution: BI under: COGS under 26,000; EI over: COGS under 52,000 (26K under + 52K under) = 78K under Problem 6. FAR Martin Co. purchased the following portfolio of fair value through other comprehensive income securities during 2002 and reported the following balances at December 31, 20x2. No sales occurred during 20x2. All declines are considered to be temporary. Security Cost Fair Value at 12/31/20x2 X ₱ 80,000 ₱ 82,000 Y 140,000 132,000 Z 32,000 28,000 Martin Co. should report what amount related to the securities transactions in its 20x2 profit or loss? a. 0 c. 10,000 unrealized loss b. 2,000 unrealized loss d. 12,000 unrealized loss CORRECT ANSWER: A

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Since the investments are classified under FVOCI, no unrealized gain or loss is to be recognized in profit or loss. Changes in fair value are recognized in other comprehensive income.

Theory 7. RFBT Anna was obliged to pay Mike Php 800,000 on December 31, 2015. She paid Mike on December 31, 2014 believing that the obligation was already due and demandable. How much may Anna recover from Mike on March 31, 2016? a. Nothing because the obligation is already extinguished b. Legal interest for one year and three months c. Legal interest for one year d. P1M plus legal interest for one year CORRECT ANSWER: C

Theory 8. MAS If the counterpart of “current ratio” in capital budgeting is the “profitability index,” then what is the capital budgeting’s counterpart of the “net working capital?” a. Payback period b. Net present value c. Internal rate of return d. Accounting rate of return CORRECT ANSWER: B

Problem 9. Taxation A single individual taxpayer, resident citizen, has the following dependents during the year: Andres, senior citizen, not a relative Ben, person with disability, child, 22 years old Carmen, 21 years old, resides abroad because of sickness David, child with his live-in partner, 18 years old How much total additional exemptions can this taxpayer claim? a. P100,000 c. P50,000 b. P 75,000 d. P25,000 CORRECT ANSWER: B The taxpayer may claim additional exemptions for Ben, Carmen, and David only.

Theory 10. Auditing What is the total number of members of the Education Technical Council (ETC), Auditing and Assurance Standards Council (AASC) and Continuing Professional Education (CPE) Council? CORRECT ANSWER: 25 There are 7 members of the ETC, 15 for the AASC, and 3 for the CPE Council.

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AVERAGE (10 items, 5 points per correct answer) Problem 1. FAR ABC Company owns stock in XYZ Company. The stock is traded on the New York Stock Exchange and the London Stock Exchange. Stock price information from the two stock exchanges on December 31 is as foIIows: Exchange Quoted Price Transaction Costs New York 103 1 London 106 5 What is the fair value of the XYZ stock on December 31 if there is no principal market for the stock? a. 101 b. 102 c. 103 d. 106 CORRECT ANSWER: C Solution: Market Quoted Price Transaction Costs Net price

New York 103 (1) 102

London 106 (5) 101

The “most advantageous” market is New York Stock Exchange and the quoted price in this market is 103.

Theory 2. RFBT On February 14, 2015, Mark orally sold for Php 10M his house and lot to Bert. It was agreed that delivery of the house and lot and the payment thereof would be made on April 10, 2015. Unfortunately, Lucas, a stranger negligently set the house on fire on March 17, 2015 and the house was completely destroyed. As a result, a. Mark need not deliver the lot and Bert need not pay the Php 10M b. Bert is required to pay the Php 10M minus the equivalent fair market value of the house c. Mark must still deliver the lot and the salvage value of the house while Bert must still pay the Php10M d. Mark must still deliver the lot but is already excused from the delivery of the house while Bert must still pay the full amount CORRECT ANSWER: A

Problem 3. AFAR PBC Company’s Job 004 manufactured 13,750 units that were completed in February at unit costs presented as follows: Direct materials P300 Direct labor 270 Factory overhead (includes an allowance of P15 Spoiled work) 270 Final inspection of Job 004 disclosed 1,250 spoiled units, which were sold for P225,000.

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What would be the unit cost of good units if the spoilage loss is attributable to exacting specifications of Job 004? a. P 840 b. P 889.50 c. P 825 d. P 862.50 CORRECT ANSWER: B Solution: Direct materials Direct labor Factory overhead (excluding allowance for spoiled work)

P300 270 255 P825

Total COGS (P825 x 13,750u) Less: NRV of spoiled goods Cost transferred to FG Divided by: Remaining Good Units Unit Cost

P 11,343,750 (225,000) P 11,118,750 12,500 P 889.50

Problem 4. Taxation The 2015 income tax return (ITR) of MSG Corporation shows the following data: Income tax due Less: Tax credits Quarterly payments for the first three quarters Excess tax payments

P

250,000

( (P

300,000) 50,000)

MSG Corporation opts to claim the excess payments in 2015 as tax credit to be carried over to succeeding quarters of 2016. The following cumulative data are presented: First Quarter Sales, gross of 1% withholding tax Cost Operating expenses

P 500,000 250,000 50,000

Second Quarter

Third Quarter

P 1,100,000 650,000 150,000

P 1,500,000 800,000 300,000

How much is the income tax due to the BIR in April 15, 2017? ANSWER: P 23,000 Solution: Annual Return Sales Less: Cost of sales Gross income from operation Add: Non-operating and other income Total gross income Less: Deductions

P 2,200,000 1,200,000) P 1,000,000 P 1,000,000 ( 500,000) (

Year P 2,200,000 1,200,000 500,000

8th Search for Regional Accounting Wizards Elimination Round Taxable income Tax rate Income tax due Less: Tax credits/payments Prior year’s excess credits Tax payments, first 3 quarters Creditable tax withheld, first 3 quarters Creditable tax withheld, fourth quarter Tax payable (overpayment)

P P

500,000 30% 150,000

P

50,000) 55,000) 15,000) 7,000) 23,000

( ( ( (

Quarterly Declarations (Returns) Sales Less: Cost of sales Gross income Add: Other income Total gross income Less: Deductions Taxable income, this quarter Add: Taxable income, previous quarters Total taxable income to date Tax rate Tax due Less: Tax credits/payments Prior year’s excess tax credit Tax payments, previous Qs Creditable tax withheld, previous quarters Creditable tax withheld, this quarter Tax payable (overpayment) P

First Q P 500,000 ( 250,000 ) 250,000 250,000 ( 50,000) 200,000

Second Q P 600,000 ( 400,000) 200,000 200,000 ( 100,000) 100,000

Third Q P 400,000 ( 150,000 ) 250,000 250,000 ( 150,000 ) 100,000

P 200,000 30% P 60,000

200,000 P 300,000 30% P 90,000

300,000 P 400,000 30% P 120,000

( ( ( (

50,000) ) -

)

( (

50,000) 5,000)

( (

50,000 ) 29,000 )

(

5,000)

(

11,000 )

5,000) ( 5,000 P

6,000) ( 24,000 P

4,000 ) 26,000

Theory 5. Auditing The punishment, upon conviction, for any person who has violated any of the provisions of the Accountancy Act of 2004, or any of its Implementing Rules and Regulations as promulgated by the Board of Accountancy: a. A fine of not less than fifty thousand pesos (P50,000.00) and imprisonment for a period not exceeding two (2) years. b. A fine of not less than fifty thousand pesos (P50,000.00) but not an imprisonment. c. No fine but an imprisonment for a period not exceeding two (2) years. d. A fine of not less than fifty thousand pesos (P50,000.00) or imprisonment for a period not exceeding two (2) years, or both. CORRECT ANSWER: D

Problem 6. FAR At the end of January 2015, the city government provided Hesington Company a zero interest P30,000,000 3-year loan used by the Company in acquiring a building on the same date. The prevailing market rate of interest for this type of loan is 8%. The government imposes that the building must be used for social housing for ten years. The Company estimated that there is

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reasonable assurance that it will meet the terms of the grant. The Company will classify the building as owner occupied property after the socialized housing project. The Company opted to use the cost model of accounting the building with a 15-year life from the date of acquisition. (Round PV factors to 4 decimal places) Applying provisions of PAS 20 – Accounting for Government Grants and Disclosures of Government Assistance, what is the amount recognized as income from the grant as of December 31, 2015? a. P 618,600 b. P 567,050 c. P 1,746,360 d. P 1,905,120 CORRECT ANSWER: B

Theory 7. Taxation Which of the following statements are not valid grounds for the claim for refund or issuance of tax credit certificate for unutilized input taxes? I. Input taxes claimed on importation of goods supported by photocopied import entry declarations (IEDs) or singe administrative documents (SAD) certified by the Bureau of Customs. II. Input taxes claimed on local purchases of goods supported by Non-VAT invoices. III. Input taxes claimed on local purchases of services supported by VAT invoices. IV. Input taxes claimed on local purchases of goods supported by a single invoice presented twice in the summary lists. V. Input taxes claimed on local purchases of services supported by official receipts with preprinted "TIN" followed by the seller’s registered TIN. ANSWER: I, II, III, IV and V Reference: CTA EB Case No. 603 dated April 8, 2011  Input taxes claimed on importation of goods supported by original copies of IEDs or singe administrative documents (SAD) certified by the Bureau of Customs.  Input taxes claimed on local purchases of goods supported by VAT invoices.  Input taxes claimed on local purchases of services supported by VAT official receipts.  Input taxes claimed on local purchases of goods supported by a single invoice presented once in the summary lists. Input taxes claimed on local purchases of services supported by official receipts with pre-printed "VATRegistered TIN" followed by the seller’s registered TIN.

Theory 8. AFAR Entity A acquired Entity B. On the acquisition date, Entity B had an operating lease as a lessee with a remaining period of two years out of the original four years. Due to significant changes in the market, Entity B is paying less than what you would expect to currently pay for a similar lease. The value of the existing lease based on the current terms is 10,000 and that of a lease based on relative market terms is 13,000. How should Entity A account for this? a. Entity A should disregard this, as this is an operating lease of Entity B and no asset or liability is recognized related to operating leases. b. Entity A determines whether the terms of each operating lease in which Entity B is the lessee are favorable or unfavorable. Entity A should account for the difference between the value of the existing lease terms and the market terms in profit or loss. c. Entity A determines whether the terms of each operating lease in which Entity B is the

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lessee are favorable or unfavorable. Entity A should recognize an intangible asset separate from goodwill for the favorable portion of the operating lease relative to market terms. d. None of the above. CORRECT ANSWER: C

Problem 9. FAR On January 1, 2016, Merl’s defined benefits pension plan showed a surplus of P75,000. The maximum future benefit available to Merl in the form of future contribution reductions was P30,000. The 2015 service costs amounted to P8,000 and the assumed discount rate at the beginning of the period amounted to 5%. During 2015, contributions of P9,000 were made into the pension plan. If the maximum future benefit available to Merl is P30,000, what is the amount of net pension asset or liability at December 31, 2016? a. P 27,250 b. P 29,500 c. P 30,000 d. P 31,000 CORRECT ANSWER: C. Asset ceiling of P 30,000. Problem 10. MAS The following information for a recent project was taken from the records of Six Company:  Process time 15.0 days  Inspection time 0.5 days  Waiting time: o From order receipt until start of production 6.0 days o From start of production through project completion 3.0 days  Move Time 1.5 days As judged by the cycle efficiency, what percentage of the overall production time was spent on (1) value-adding activities and (2) non-value adding activities? CORRECT ANSWER: 75% (value-adding); 25% (non-value adding)

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DIFFICULT (10 items, 7 points per correct answer) Theory 1. Auditing Which of the following cases illustrate a violation of the provisions of RA9298 and its IRR regarding the rule on temporary and special permits? a. A, foreign CPA, is internationally recognized as one of the foremost experts in computerized fraud audits. In the judgment of the Board of Accountancy, obtaining the services of A is essential for the advancement of accountancy in the Philippines. A is granted a temporary/special permit to provide training to Filipino auditors regarding the finer points of his specialization, and his permit is restricted to this particular engagement. b. B, foreign CPA, is called for a specific purpose which, in the judgment of the Board of Accountancy, is essential for the development of the country. B is granted a temporary/ special permit to practice for the particular work that he is being engaged. This, despite the fact that Z, a Filipino CPA, is qualified and available for such specific purpose. c. C, foreign CPA, is called for consultation, which, in the judgment of the Board of Accountancy, is essential for the development of the country. C is granted a temporary/ special permit to practice for the particular consultation that she is being engaged. There is no Filipino CPA qualified for such consultation. d. D, foreign CPA, is engaged as professor in special international accounting modules which are essential to accountancy education in the Philippines. She was given a temporary/special permit which restricts her practice to teaching special international accounting standards. CORRECT ANSWER: B

Problem 2. FAR CECIL Company sold loans with P2,200 fair value and carrying amount of P2,000. The entity obtained an option to purchase similar loans and assumed a recourse obligation to repurchase loans. The fair values are quoted. Cash proceeds

2,100

Interest rate swap

140

Call option

80

Recourse obligation

(120)

What is the gain (loss) on the sale? A. 320 B. 200 C. (100) D. 120 CORRECT ANSWER: B

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Problem 3. AFAR On June 1, 2012 SME USA acquired 35% of the equity of CHI and UK for P 58,000 and P 37,000, respectively. SME USA shares joint control, with other venturers, over the strategic financial and operating decisions of entities CHI and UK. Transaction costs of 5% of purchase price of the shares were incurred by USA. On December 31, 2012, entities CHI and UK declared and paid cash dividends of P 15,000 and P 24,000, respectively. Also, for the year ended December 31, 2012, entity CHI recognized a net loss of P 42,000; while entity UK recognized a net profit of P 18,000. Published price quotations do not exist for shares of entities CHI and UK. Using appropriate valuation techniques, SME USA determined the fair value of its investments in entities CHI and UK at December 31, 2012 as P 65,000 and P 49,000, respectively. Cost to sell are estimated at 9% of the fair value of the investments. SME USA does not prepare consolidated statements because they do not have any subsidiaries. Applying principles of Section 15 of IFRS for SMEs, what is the investment balance of SME USA at the end of the year in entity UK under the equity model? CORRECT ANSWER: P34,125

Problem 4. Taxation The following data were provided by Air America, international carrier doing business in the Philippines: Gross receipts, sales of tickets in the Philippines (Manila to Taipei flight) Gross receipts, sales of tickets in Japan (Manila to Tokyo flight) Gross receipts, sales of tickets in Japan (Tokyo to Manila flight) Gross receipts, sales of tickets in the Philippines (Manila to Hongkong flight), passengers were endorsed to another international airline which airlifted them from Manila Gross receipts, sales of tickets in the Philippines (Manila to Los Angeles flight), passengers were transshipped in Tokyo to Los Angeles by another airline (flight from Manila to Tokyo – 5 hours; flight from Tokyo to Los Angeles – 10 hours) Expenses, Philippines

PhP

5,000,000 3,000,000

1,000,000

4,500,000 4,000,000

How much was the Philippine income tax due and payable? CORRECT ANSWER: PhP 387,500 Solution: Gross receipts, Philippines (Manila to Taipei) Gross receipts, Japan (Manila to Tokyo) Gross receipts, Philippines (Manila to Hongkong)

P

8,000,000

8,000,000 5,000,000 1,000,000

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Gross receipts, Philippines (Manila to Los Angeles) (5/15 X P4,500,000) Gross Philippine billings Tax rate Income tax due and payable

P P

1,500,000 15,500,000 2 ½% 387,500

Problem 5. Auditing The following were gathered from MAY KAPIT Company, a VAT exempt entity:  Interest counted in the bodega 4,000,000  Items included in the count specifically segregated per sale contract 100,000  Items in receiving department, returned by customer, in good condition 50,000  Items ordered and in the receiving department, invoice not received 400,000  Items ordered, invoice received but goods not received. Freight is on the account of seller 300,000  Items in receiving department, refused by the Company because of damage 180,000  Items included in count, damaged and unsalable 50,000  Items in the shipping department 100,000  Abnormal production costs 50,000  INPUT VAT in acquiring inventories 25,000  Brokerage costs in importing inventories 20,000  Materials 1,400,000  Advance for materials ordered 200,000  Unexpired insurance on inventory 60,000  Advertising catalogs and shipping cartons 150,000  Finished goods in entity-owned retail store, including 50% on cost 750,000  Finished goods on hands of consignees including 40% profit on sales 400,000  Finished goods in transit to customers, shipped FOB destination at cost 250,000  Finished goods out on approval, at cost 100,000  Unsalable finished goods, at cost 50,000  Shipping supplies 20,000  Gasoline and oil for testing finished goods 110,000  Machine lubricants 60,000 Applying principles of IAS 2 – Inventories, what is the correct amount of inventory? CORRECT ANSWER: P7,105,000

Theory 6. RFBT Under the Philippine Deposit Insurance Corporation (PDIC) Code, the Corporation shall not pay deposit insurance for the following accounts or transactions, whether denominated, documented, recorded or booked as deposit by the bank, all except: a. Investment products such as bonds and securities, trust accounts, and other similar instruments b. Deposits that are determined to be the proceeds of an unlawful activity as defined under Republic Act No. 9160

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c. Deposit accounts or transactions whether fictitious/fraudulent or valid d. Deposit accounts or transactions constituting, and/or emanating from, unsafe and unsound banking practice/s, as determined by the Corporation, in consultation with the BSP, after due notice and hearing, and publication of a cease and desist order issued by the Corporation against such deposit accounts or transactions Answer: C. Deposit accounts or transactions whether fictitious/fraudulent or valid Legal Basis: Sec 2 of PDIC Code, “The Corporation shall not pay deposit insurance for the following accounts or transactions, whether denominated, documented, recorded or booked as deposit by the bank: “(1) Investment products such as bonds and securities, trust accounts, and other similar instruments; “(2) Deposit accounts or transactions which are unfunded, or that are fictitious or fraudulent; “(3) Deposit accounts or transactions constituting, and/or emanating from, unsafe and unsound banking practice/s, as determined by the Corporation, in consultation with the BSP, after due notice and hearing, and publication of a cease and desist order issued by the Corporation against such deposit accounts or transactions; and “(4) Deposits that are determined to be the proceeds of an unlawful activity as defined under Republic Act No. 9160, as amended. “The actions of the Corporation taken under this section shall be final and executory, and may not be restrained or set aside by the court, except on appropriate petition for certiorari on the ground that the action was taken in excess of jurisdiction or with such grave abuse of discretion as to amount to a lack or excess of jurisdiction. The petition for certiorari may only be filed within thirty (30) days from notice of denial of claim for deposit insurance.”

Theory 7. RFBT Which of the following is not incorrect: I. The bailee in commodatum can lend or lease the object of the contract to a third person II. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable jointly III. A contract whereby one person transfers the ownership of non-fungible things to another with the obligation on the part of the latter to give things of the same kind, quantity and quality shall be considered a loan IV. Precarium is a kind of mutuum where the bailor may demand the thing loaned at will CORRECT ANSWER: NONE Legal Basis: Article 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event: (1) If he devotes the thing to any purpose different from that for which it has been loaned; (2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted; (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event; (4) If he lends or leases the thing to a third person, who is not a member of his household; (5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (1744a and 1745)

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Article 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. (1748a) Article 1954. A contract whereby one person transfers the ownership of non-fungible things to another with the obligation on the part of the latter to give things of the same kind, quantity, and quality shall be considered a barter. (n) Article 1947. The bailor may demand the thing at will, and the contractual relation is called a precarium, in the following cases: (1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or (2) If the use of the thing is merely tolerated by the owner. (1750a)

Theory 8. Auditing When using statistical sampling for attributes, an auditor should assess control risk at the maximum assuming: a. The sample rate of deviation plus the allowance for sampling risk is less than the tolerable rate. b. The sample rate of deviation plus the allowance for sampling risk is equal to the tolerable rate. c. The sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate. d. The sample rate of deviation is roughly proportional to the sample rate from the prior year. CORRECT ANSWER: C

Problem 9. Auditing

CORRECT ANSWER: D

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Problem 10. Taxation

A non-resident alien decedent who is unmarried, left the following properties:  Car, Manila P500,000  Car, USA 600,000  Shares of stock, USA 600,000  Share of stock, Manila 400,000  House and lot, USA 800,000  Bank deposit, PNB-Manila 100,000 The administrator claimed the following deductions:  Actual funeral expenses 40,000  Judicial expenses 30,000  Claims against the estate 20,000  Transfer for public use 10,000 How much was the total deductions form Philippine gross estate in connection with Philippine estate tax? CORRECT ANSWER: P 40,000 Funeral expense: Actual Limit (1,000,000 x 5%) Allowed (lower) Judicial expenses Claims against the estate Total expenses, losses, indebtedness, taxes, etc Deductible expenses, losses, indebtedness, taxes, etc (1,000,000/3,000,000 x P90,000) Transfer for public use Total deductions from Philippine gross estate

40,000 50,000 40,000 30,000 20,000 90,000

30,000 10,000 40,000