7th Pylon Cup Final Round SGV

EASY MAS 1. A company’s return on assets is determined to be 15% while debt ratio remains relative constant at 40%. What is the company’s return on equity? a. 9% b. 6% c. 25% d. 37.5% e. Correct answer not given Answer: C. 25% AT 2. SheenaBrey is working at her desk when her phone rings. She picks it up and says, “Hello?” The caller asks to speak to Sheena Brey. If Sheena wants to be grammatically correct, which of the following responses should she choose? I. This is she. II. This is her. III. Speaking a. I only b. I or III c. II or III d. Any of the above is grammatically correct Answer: B. I or III P2 3. Sy and Gor formed a general professional partnership (public practice - accounting) in the Philippines on January 1, 2014. Their capital contributions were credited to their respective capital accounts as follows: Sy, Capital – P600,000; Gor, Capital – P1,000,000. During the year, the partnership earned profit before tax of P4,000,000. The income tax rate was 30%. How much is the share of Gor in the partnership profit? a. P2,500,000

b. P2,000,000

c. P1,750,000

d. P1,500,000

Answer: A. P2,500,000 TOA 4. Which of the following statements is/are true about the recognition of NCI under IFRS 3? I. The acquirer recognizes NCI, if any, and measures all NCI it at either fair value or at the NCI’s proportionate share of the acquiree’s identifiable net assets acquired. II. The acquirer can make the choice between the 2 optional measurement of NCI for each acquisition, and is considered an accounting policy choice. a. I only

b. II only

Answer: D. Neither I nor II

c. I and II

d. Neither I nor II

P1 5. What is the 2014 depreciation expense using sum-of-the-years’ digit method on an asset purchased on July 1, 2012, costing P140,000 with a residual value of P20,000 and a 5-year useful life? Answer: P28,000

P2 6. On January 1, 2015, CL Co. acquired all of the identifiable assets and assumed all liabilities of GD, Inc. by paying P8,000,000. On this date, identifiable assets and liabilities assumed have fair value of P12,800,000 and P7,200,000, respectively. Additional information: 

CL intends to sell immediately a factory included in the above assets. Based on the documents and information available, this asset qualifies to be a held for sale under IFRS 5. As of January 1, 2015, the fair value less cost to sell and book value of this factory amounted to P1,600,000 and P2,000,000, respectively. The cost to sell deducted to the fair value amounted to P50,000.



The acquiree has an in-process research and development unrecognized on its separate books. The acquirer does not intend to use it but it has a fair value of P400,000.

. How much is the goodwill (gain on bargain purchase) on the business combination? a. P800,000 e. P2,750,000

b. P2,050,000

c. P2,400,000

d. P2,450,000

Answer: B. P2,050,000 AP 7. An asset is sold in three different active markets at different prices. An entity enters into transactions in all markets and can access the price in those markets for the asset at the measurement date. Information for these markets are shown below:

Assuming none of these markets is the principal market, which of the three is the most advantageous market? Answer: B BLT 8. Which of the following statements is/are false? I. II. III.

If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. Unapplied input taxes may be treated outright as deductible expense for income tax purposes once the 2 year prescriptive period expires. Input tax attributable to non-VAT sales maybe claimed as deductible expense for income tax purposes.

Answer: II only

AVERAGE AT 9. The following have received the results of their CPA Board Exams:

Candidate

Results of July 2014 Exams

Martin

Failed

This is Martin’s removal examination. He last took the examination in October 2013, where he received conditional credits.

Manuel

Failed

This is Manuel’s first quest for the CPA license.

Mark

Failed

Mark failed in the May 2012 examinations. He took three reviews but still fell short of the grade.

Remarks

Marvin

Failed

Marvin failed in the May 2013 examinations. He took another examination in October 2013 and got conditional credits.

Who among these candidates must take a refresher course (of at least 24 units of subject given in the licensure examination) before embarking on another attempt for a CPA License (assume that 2014 is the current year)? Answer: Mark and Marvin TOA 10. Which of the following entities is/are not subsidiaries of EBC? I. EBC Ltd. has an interest of 52% in ABD Ltd. and signed an agreement with the shareholder B, whereby B is responsible for the production and commercial operations of ABD Ltd., while EBC is responsible for the marketing decisions and human resources department. II. EBC Ltd. has direct interest in 27% of Douro Wines. At the beginning of this year, EBC Ltd. entered into an agreement whereby it established an option to increase its holding with more than 24% of the equity interests of Douro Wines. The exercise price of the call option is in the money and it can be exercised at any moment. III. EBC Ltd. has 42% of GHT Ltd. and has the right to veto in the board of directors with regard to the annual operating budget. Answer: I only

MAS 11. BACK Company has made the following information available:

Accounts Receivable, net Inventory Current assets Total assets, net Current liabilities Cash sales Credit sales Costs of sales

2013 2014 2015 PhP40,000 PhP42,500 PhP45,000 40,000 50,000 45,000 120,000 140,000 130,000 700,000 750,000 725,000 70,000 80,000 50,000 400,000 420,000 450,000 120,000 125,000 131,250 310,000 324,000 345,000

What is the turnover of (net) working capital for 2015? Answer: 8.3 BLT

12. Which of the following statements is/are true? I. II.

If the authority is to lease a building to third persons for at least one year, a special power of attorney is necessary. The authority to sell a property in behalf of the principal necessarily includes the authority to mortgage.

Answer: None P2 13. OPM Co. Is in bankruptcy and is being liquidated by a court-appointed trustee. The financial report that follows was prepared by the trustee just before the final cash distribution: Cash

P1,000,000

Claims: Mortgage payable secured by property that was sold for P300,000 Unsecured accounts payable Administrative expenses payable Salaries payable Interest payable related to mortgage payable

P800,000 500,000 80,000 20,000 100,000

What was the percentage of recovery for unsecured creditors? (round-off into 2 decimal %) Answer: 54.55% P1 14. The books of DARLENE Co. shows the following: Cash on hand – P0.40M; Cash in Bank – current account – P1.40M; Cash in Bank – peso savings account – P8M; Cash in Bank – unrestricted dollar deposit – $0.40M; Cash in Bank – restricted dollar deposit – $0.08; Cash in money market account – P1M; Treasury bill, maturing February 28, 2015, acquired December 1, 2014 – P3.20M; Treasury bond, maturing February 28, 2015, acquired March 1, 2014 – P2M; Unused Credit Line – P8M; Redeemable preference shares, purchased 12/31/2014, mandatory redemption date is 3/1/2015 – P1.48M; Treasury shares, purchased 12/1/2014, to be reissued on 3/5/2015 – P0.20M; Sinking fund – P0.80M Additional information:  Cash on hand includes a P80,000 check payable to DARLENE Co. dated January 10, 2015.  During December 2014, checks amounting to P240,000 and P160,000 were drawn against the current account in payment of accounts payable. The P240,000 check is dated January 15, 2015. The P160,000 check is dated December 31, 2014 but was delivered to the payee only on January 15, 2015.



The Cash in Bank – peso savings deposit includes a deposit in escrow in the amount of P1.36M and a compensating balance amounting to P1M which is legally restricted. The Cash in Bank – dollar deposit (unrestricted) account includes interest of $8,000, net of tax, directly credited to DARLENE Co.’s account. The exchange rate as of year-end is $1 is to P40.



How much is the cash and cash equivalents to be reported in the 2014 financial statements? a. P21,440,000

b. P29,440,000 c. P37,440,000 d. P28,440,000

Answer: B. P29,440,000 AP 15. In which of the following will an entity not record impairment loss?(choose one or more)

Answer: Scenarios 1, 2 and 4 only

TOA 16. Which of the following items are both exempted to the recognition and measurement principles of IFRS 3? I. II. III. IV. V.

Asset held for sale Employee benefits Income taxes Indemnification assets Share-based payment

Answer: II, III and IV only DIFFICULT TOA 17. Acquisition accounting requires an acquirer and an acquiree to be identified for every business combination. Where entity (H) is created to acquire two pre-existing entities, S (larger entity than A) and A, which of these entities will be designated as the acquirer? a. H b. S c. A or S d. May depend on the consideration transferred by H Answer: D

AP 18. The stockholders equity of P Co. showed the following data on December 31, 2012: 12% preferred stock, P30 par, 135,000 shares issued and outstanding P4,050,000 Common stock, P50 par, 180,000 shares issued and outstanding 9,000,000 Premium on preferred stock 1,080,000 Premium on common stock 3,240,000 Retained earnings 1,395,000 The 2013 transactions of the company affecting its stockholders’ equity are summarized chronologically as follows: 1. 2. 3. 4. 5. 6. 7.

Issued 27,000 shares of preferred stock at P40. Issued 94,500 shares of common stock at P70. Retired 5,400 shares of preferred stock at P45. Purchased 13,500 shares of its common stock at P80. Split common stock two for one (par value reduce to P25). Reissued 13,500 shares of treasury stock – common at P50. Stockholders donated to the company 9,000 shares of common stock when shares had a market price of P52. One half of these shares were subsequently issued for P54. 8. Dividends were paid at the end of the calendar year on the common stock at P2 per share and on the preferred stock at the preferred rate. 9. Net income for the year was P2,520,000. Determine the amount of APIC as of December 31, 2013 (60 secs) Answer: P6,814,800

TOA 19. What earnings figure should be used for determining basic EPS?

a. b. c. d.

Consolidated net profit after tax attributable to parent Consolidated profit after tax A and B None of the choices

Answer: A. Consolidated net profit after tax attributable to parent P1 20. Canary Co. determined that one of its cash-generating units is impaired. Information on the assets of the CGU is shown below:

Assets Inventory Investment property (at cost model) Building Goodwill

Carrying Amount P 800,000 1,600,000 2,400,000 1,200,000

It was estimated that the value in use of the CGU is P3,600,000 and its fair value less costs to sell is P2,400,000. How much is the carrying amount of the inventory after the impairment testing? a. P320,000 c. P600,000 e. Correct answer not given b. P480,000 d. P800,000 Answer: D. P800,000 AP 21. You have obtained the latest actuarial report prepared for SHOULD-BE Corp’s pension plan. Information about the actuarial reports are presented below: From the December 31, 2015 actuarial report

Present value of defined benefit obligation Fair value of plan assets at end of year Current service cost for year Benefits paid in year Contributions paid in year Discount rate at end of year

12/31/2014 3,600,000

12/31/2015 3,500,000

3,900,000 345,000 240,000 430,000 4.5%

3,800,000 320,000 230,000 410,000 5.0%

Assume contributions and benefit payments occurred evenly throughout the year. Based on the above information and assumptions determine the OCI component to of the PBO to arrive at the ending balance on December 31, 2015: (Round of any components in the computation to the nearest thousands) Indicate if debit or credit Answer:P347,000 credit P2 22. On May 1, 2014, the Geri Inc. acquired 80% of the voting shares of JonJon Limited. The fair value of the identifiable assets and liabilities of the acquiree as at the date of acquisition were P13,786,000 and P4,300,000, respectively. The fair value of NCI at the date of acquisition is P1,547,000. The fair value of the NCI has been estimated by applyinga discounted earnings approach. Geri issued 2,500,000 ordinary shares as consideration for the 80% interest in the acquiree. The fair value of the shares is the published price of the shares of Geri at the acquisition date, which was P2.88 each (rounded – off from P2.8812). The fair value of the consideration given is therefore P7,203,000. Transaction costs of P600,000 have been expensed and are included in administrative expenses. The attributable costs of the issuance of the equity instruments of P32,000 have been charged directly to equity as negative share premium. Said costs were already paid. As part of the purchase agreement with the previous owner of JonJon Limited, a contingent consideration has been agreed. There will be additional cash payments to the previous owner of JonJon Limited of:  

P675,000, if the entity generates P1,000,000 of profit before tax in a 12-month period after the acquisition date, or P1,125,000, if the entity generates P1,500,000 of profit before tax in a 12-month period after the acquisition date.

As at the acquisition date, the fair value of the contingent consideration was estimated at P714,000. As at December 31, 2014, the key performance indicators of JonJon Limited show clearly that target (a) will be achieved and the achievement of target (b) is probable due to a significant expansion of the business and synergies implemented. Accordingly, the fair value of the contingent consideration was determined to be P1,071,500. The entity was able to generate more than P1,500,000 of profit before tax on the settlement date, thus, was required to pay P1,125,000. In the consolidated financial statements, what is the net effect in equity of the above acquisition for the year ended December 31, 2014? (disregarding any income earned from operations by both the acquirer and acquiree)

Answer: P8,110,700 TOA 23. Which of the following disclosures is/are not mandatory for associates and joint ventures in accordance with IFRS 12? I. Liberty Ltd. shall disclose the summarized financial information, the profit and loss of the noncontrolling interests and the dividends paid to non-controlling interests. II. Liberty Ltd. shall disclose a schedule that shows the effects on the equity attributable to its owners of the decrease of 15% in its ownership interest. III. Liberty Ltd. shall disclose the portion of the gain or loss attributable to measuring the 85% relative to the retained investment at its fair value and the line in profit or loss in which the gain or loss is recognized. Answer: III only AT 24. Given the following information, what number results from [(E) + (C)] – {(B) x [(A) – (D)]}? Item (A): The number of years that comprises a single term of a duly appointed SEC commissioner. Item (B): The required minimum number of CPE credit units that an accounting teacher shall earn in each year prior to renewal of accreditation. Item (C): The age required for a registered professional to be exempted from CPE requirements permanently. Item (D): The number of subjects covered in the CPA Licensure Examination. Item (E): The number of years the independent CPA, who audited the records and certified the financial statements of the Company, shall maintain and preserve electronic copies of the audited and certified financial statements, including the audit working papers. Answer: 75 BLT 25. In taxable year 2013, payment for various penalties amounting to P 19,119,139 was considered as non-deductible expense for purposes of computing the Company’s taxable net income for 30% Regular Corporate Income Tax (RCIT) purposes. Said penalties pertain to CY 2008 tax assessments. The details of the said penalties are as follows:

Tax Type Documentary Stamp Tax (DST) Income tax (IT) Expanded Withholding Tax (EWT) Premium Tax (PT) Total

P

P

Basic 2,939,261 P 707,998 2,615,926 1,383,002 7,646,187 P

Interest Penalty 4,400,033 P 25,000 P 1,021,069 20,000 3,901,671 25,000 2,055,179 25,000 11,377,952 P 95,000 P

Total 7,364,294 1,749,067 6,542,597 3,463,181 19,119,139

Invoking Section 34 (C) of the tax Code, as amended and Section 80 of Revenue Regulations (RR) No. 2, how much from the said amount may be considered as non-deductible expense for RCIT purposes? (Average) a. P95,000 Answer: B. P3,418,924

b. P3,418,924

c. P3,548,924

d. P8,291,664