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EASY
EASY THEORY OF ACCOUNTS
1. If an entity uses the calendar year changes its business model for managing
financial assets on February 1, 2013, applying PFRS 9 Financial Instruments, the
reclassification date is on _________________________
Answer: January 1, 2014
EASY PRACTICAL ACCOUNTING 1
2. Paolo Company holds an investment of 30% in the ordinary shares of Uneta
Company, an associate that has a net assets of P4,000,000 for the year ended
December 31, 2014 which includes the current year net profit of P490,000. The
associate has issued 100,000 9% cumulative preference shares with a nominal
value of P10. The preference shares are classified by the associate as equity
instruments. The associate declared dividends on the cumulative preference
shares amounting to P270,000 for dividends in arrears and current years
dividend. How much is Paolo Companys share in profit or loss of the associate for
calendar year ended December 31, 2014?
Answer: P120,000
EASY PRACTICAL ACCOUNTING 2
3. Samsung Company consigned 10 refrigerators to Apple Sales Company. Each
refrigerator cost P12,000. The freight on the shipment amounting to P500 each
was paid by Samsung. Apple Sales Company returned 1 unit to Samsung in good
condition. Apple Sales Company paid P200 for the shipment of the returned unit.
Apple Sales Company reported that only 8 units were sold at a price that yield
25% gross profit rate. Apple Sales Company remitted the amount due to Samsung
Company after deducting 20% commission and freight of the returned units. The
net profit to be recognized by Samsung Company on the consignment amounted
to:
Answer: P1,700
EASY BUSINESS LAW AND TAXATION
4. In 2010, Demi Corporation purchased a residential house and lot in installment at
an installment contract price of P2,600,000. The corporation allowed its President
and his family to use it as their residential house. The fair market value per BIR
and per Assessors Office were P2,800,000 and P2,607,000 respectively. How
much was monthly fringe benefits tax, if any?
Answer: P2,549.02
EASY AUDITING THEORY
5. This is an unauthorized program placed within an authorized one. Typically, these
programs wait until a specific time, when they act and then erase all evidence of
their existence.
Answer: TROJAN HORSE
EASY MANAGEMENT ADVISORY SERVICES
6. Rhada Ornaments sells lawn ornaments for P15 each. Rhada's contribution margin
ratio is 40%. Fixed costs are P32,000. Should fixed costs increase 30%, how many
additional units will Rhada have to produce and sell in order to generate the same
net profit as under the current conditions?
Answer: 1,600
EASY AUDITING PROBLEMS
7. On January 1, 2009, Mitoy Company purchased an asset for P2,500,000 with an
estimated economic life of ten years with no salvage value. Straight-line method
of depreciation is to be used. On January 1, 2011, the Company has reliably
determined that the recoverable amount is P1,600,000. On January 1, 2013, the
asset has a recoverable amount of P1,860,000. If the Company uses revaluation
model to measure long live assets, what is the amount reported in the
shareholders equity as revaluation surplus on December 31, 2013?
Answer: P300,000
AVERAGE
AVERAGE THEORY OF ACCOUNTS
1. Aria and Ezra entered into a joint arrangement to form A team Corporation
which shall manufacture materials required by Aria and Ezra for their own,
individual manufacturing processes. The arrangement ensures that the parties
operate the facility that produces the materials to the quality specifications of the
parties.
Each party shall have 50% ownership interest in A team Corporation. A team
Corporation shall have its own assets, incurs its own obligations, generate its own
income, and incurs its own expenses.
In addition to the facts stated above, it was agreed further that:
Aria and Ezra shall purchase all of the output produced by A team Corporation
in a ration of 50:50. A team Corporation cannot sell any of its output to third
parties, unless this is approved by Aria and Ezra.
The price of the output sold to the parties is set by both parties at a level that
designed to cover the costs of production and administrative expenses incurred
by A team Corporation. On the basis of this operating model, the arrangement
is intended to operate at a break-even level.
Which of the following statements is incorrect?
a. The obligation of the parties to purchase all of the output produced by A
team Corporation reflects the exclusive dependence of A team Corporation
upon the parties for the generation of cash flows. Therefore, the parties have
an obligation to fund the settlement of the liabilities of A team Corporation.
b. The fact that the parties have rights to all the output produced by A team
Corporation means that the parties are consuming, and therefore have rights
to all the economic benefits of the assets of A team Corporation.
c. The facts and circumstances indicate that the arrangement is a joint
operation.
d. The facts and circumstances indicate that the arrangement is a joint venture.
Answer: D. The facts and circumstances indicate that the arrangement is
a joint venture.
P40.00
5% of production
0.475 yard
P1.00/yard
P0.90 /scarf
3%
2%
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf.
Rejects have no market value. Materials are used at the start of production.
Calculate the standard cost of cloth per scarf that The Originals Company
should use in its cost sheets.
Answer: P19.90
AVERAGE AUDITING PROBLEMS
7. A car rental company acquired vehicles for a total cost of P15,000,000 with the
intention of holding them as rental cars for a limited period and then selling them.
The car rental company, in the ordinary course of business, routinely sells
vehicles acquired for car rental. The estimated life of the vehicles acquired was 8
years and after 6 years, the said vehicles will be available for sale. The proceeds
from the sale of the vehicles was P10,000,000 which happened at the end of the
7th year. What is the amount of cash outflow and inflow to be classified as
investing activities from the initial expenditure on acquisition of the vehicles (PPE)
and from subsequent sale, respectively?
Answer: P -0-; P -0- (Paragraph 14 of PAS 7)
DIFFICULT
DIFFICULT THEORY OF ACCOUNTS
1. What is the exact term used under PFRS 3 Business Combinations, where all
combining entities in a business combination transfer their net assets to a newly
formed entity?
Answer: Roll up transaction
DIFFICULT PRACTICAL ACCOUNTING 1
2. On April 1, 2013, Nina Company acquired 30% of the 100,000 outstanding shares
of Jeremy Company for P3,000,000. This investment gave Nina the ability to
exercise significant influence over Jeremy. The book value of the acquired shares
was P2,400,000. The excess of cost over book value was attributed to an
identifiable intangible asset which is undervalued on Jeremys statement of
financial position and which had a remaining life of 20 years. For the year ended
December 31, 2013, Jeremy reported a comprehensive income of P1,100,000
which includes a P300,000 revaluation reserve on its land and paid cash dividends
of P200,000 on its ordinary share and thereafter issued 15% share dividend.
Assuming the investment has a recoverable amount of P2,900,00, what is the
amount of impairment loss applying equity method and PAS 36 Impairment of
Assets?
Answer: P287,500
DIFFICULT PRACTICAL ACCOUNTING 2
3. On June 1, 2013, Mike Inc. entered into a franchise agreement with Ross Co. to
sell their products. The agreement provides for an initial franchise fee of P3M
which is payable as follows: P1M cash to be paid upon signing the contract, and
the balance in four equal annual installments every December 1, starting in 2013
as evidenced by a noninterest bearing note for the said balance signed by Mike
Inc. Prevailing market rate is 10% on June 1, 2013.The agreement further provides
that Mike Inc. must pay a continuing franchise fee equal to 5% of its monthly
gross sales. Ross Co. incurred direct cost of P930,564 and indirect costs of
P167,400. Mike Inc. started operations on July 1, 2013 and was able to generate
sales of P1,240,000 for 2013. The first installment payment was made in due
date. Assuming collectability of the note is not reasonably assured and the
franchisor used installment sales method, how much is the net income of the
franchisor for the year ended December 31, 2013? (Round off PV factors to 4
decimal places and GP % to whole %)
Answer: P909,019
Actual results
Units produced
7,800 units
Direct material purchased32,000 pounds at P2.40
Direct material used
UNKNOWN
Direct Labor
P362,670
Variances
Materials Quantity Variance
P1,100 Favorable
P6,400 Unfavorable
P9,420 Unfavorable
Based on the foregoing, what is the actual direct labor hours used and the
materials used price variance (indicate if favorable or unfavorable)?
Answer: Actual direct labor hours used of 47,100 and 3,020 favorable
material used price variance
Carrying
Amount
P
200,000
400,00
0
600,00
0
300,00
0
P
1,500,000
It was estimated that the value in use of the CGU is P800,000 and its fair
value less costs to sell is P900,000.
The buildings fair value less costs to sell is P510,000.
Determine the carrying value of the Investment property after impairment testing.
Answer: P190,000 (Inventories not within the scope of PAS 36 and
allocated impairment to the building is limited to P90,000)
CLINCHER
Kalibo
Branch
Altavas
Branch
Inventory
P
800,000
Investment in Kalibo
Branch
Investment in Altavas
Branch
Shipments from Home
Office
Purchases
P
180,000
P
240,000
450,0
00
420,0
00
600,0
00
360,
000
1,600,0
00
Expenses
900,0
00
250,0
00
Home Office
000
450,0
00
Loading
Branch
Loading
Branch
Sales
200,
Kalibo
300,
000
130,0
00
Altavas
120,0
00
1,950,0
00
Shipments to Kalibo
Branch
Shipments to Altavas
Branch
900,0
00
750,
000
500,0
00
400,0
00
Additional Information:
Physical inventories on hand as counted by the three entities at December 31,
2013 were as follows:
Home Office
P700,000
Kalibo Branch
210,000
Altavas Branch
150,000
Determine the combined net income of home office and branches for 2013.
Answer: P600,000
DIFFICULT PRACTICAL ACCOUNTING 2
2. X Builders, an operator, builds a road at a cost of P100 million, the fair value of
the construction services is P110 million, the total operating costs of the road are
P70 million and total cash inflows over the life of the concession are P200 million.
Applying IFRIC 12 Service Concession Arrangement, by how much is the total
revenue under the intangible asset model higher or lower than the total revenue
under the financial asset model over the life of the concession?
Answer: P110,000,000
DIFFICULT PRACTICAL ACCOUNTING 2
3. On July 1, 2013, Hot Company purchased 80% of the outstanding shares of Issue
Company at a cost of P1,600,000. On that date, Issue had P1,000,000 of share
capital and P1,400,000 of accumulated profits. For 2013, Hot had income of
P560,000 from its separate operations and paid dividends of P300,000. For 2013,
Issue reported income of P130,000 and paid dividends of P60,000. All the assets
and liabilities of Issue have book values equal to their respective fair market
values. Assume income was earned evenly throughout the year except for the
intercompany transaction on October 1. On October 1, 2013, Hot purchased an
equipment from Issue for P200,000. The book value of the equipment on that
date was P240,000. The loss of P40,000 is reflected in the income of Issue
indicated above. The equipment is expected to have a useful life of 5 years from
the date of sale. In the December 31, 2013 consolidated statement of financial
statements, how much is the consolidated net income attributable to the parent?
Answer: P946,400
DIFFICULT THEORY OF ACCOUNTS
4. Build-operate-transfer (BOT) contracts in the Philippines are governed by The
Philippine BOT Law or what RA?
Answer: RA No. 7718