CL Cup 2018

Auditing
1. (Easy) Upon the implementation of RA 10912, 120 CPD (Continuing Professional Development)
credit units shall be required for the renewal of CPA license and accreditation of CPAs to practice the
accountancy profession. Based on a separate BoA resolution, however, a CPA may be allowed to
renew license upon earning at least 100 CPD credit units for as long as renewal is made within what
calendar year?
B a. 2017
b. 2018
c. 2019
d. 2020

2. (Easy) An audit engagement letter

A a. May not be prepared each period for a recurring audit engagement
b. Is prepared for the benefit of the auditor, audit client and general public
c. Shall include the specific audit procedures to be performed by the auditor
d. Is usually sent by auditor to the client upon the commencement of the audit

3. (Easy) Identify the individual that has the shortest single term in office.
C a. Member of Board of Accountancy
b. Chairman of Board of Accountancy
c. Vice-Chairman of Board of Accountancy
d. Commissioner of the Commission on Audit

4. (Average)What is a common procedure being performed during an operational audit and a review of
financial statements?
A a. Inquiry c. Analytical procedure
b. Observation d. Substantive tests of details

5. (Average) An audit client was sued by its customer. The potential litigation loss ranges from P 2.5 M
to P 5 M. No single amount within the range represents the best estimate of the potential damage.
Since it is probable that the client will lose the case, it accrued P 2.5 M of litigation losses. How much
is this amount misstated?
B a. No misstatement
b. P 1,250,000 understated
c. P 2,500,000 overstated
d. P 2,500,000 understated

6. (Average) Determine the false statement.

D a. Key audit matters (KAM) reporting is required for publicly listed entities only.
b. Earnings per share (EPS) reporting is required for publicly listed entities only.
c. White box testing is more appropriate for systems which are highly automated.
d. Stratification sampling is best used for populations with high risks of understatement.

7. (Difficult) If the risk of material misstatement is considered to be high, which of the following shall
be performed by the auditor?
A) More test of details are performed
B) Interim testing must be performed
C) Substantive analytical procedures are performed

Answer: A(only)

8. (Difficult) An audit client changed from straight line depreciation to double declining balance method
at the beginning of 2018. The plant asset originally cost P 1,500,000 in 2013 using the straight-line
depreciation. Periodic depreciation using straight-line is P 60,000. What amount of depreciation
should the audit client recognize for the year?

Answer: P 120,000

9. (Difficult) The auditor proposed the following adjusting entry to correct the books of an audit client:
(Debit) Treasury shares P 12,000
(Credit) Share Premium P 12,000
The above adjusting entry was proposed in relation to the client’s acquisition of 6,000 treasury
shares at P 12.00 per share (par value: P 10.00). The client did not reissue the said treasury shares
during the year. What was the client’s journal entry for this transaction?

Answer: (Debit) Treasury shares, P 60,000 and Share premium, P 12,000

(Credit) Cash, P 72,000

10. (Difficult) Which of the following terms does not belong to the group? Control environment, Control
risk, Control activities, Control monitoring, Information system.

Answer: Control risk

 Regulatory Framework for Business Transactions (RFBT)
1. (Easy) A qualified acceptance constitutes a
B a. Waiver
b. Counter-offer
c. Perfected contract
d. Rejection of the offer

2. (Easy) Deposits that have become dormant for a period of _____ years may be escheated in favor of
the government.
D a. 1
b. 2
c. 5
d. 10

3. (Easy) Bong is a director of Tamayo Corporation who was elected to a one-year term on March 15,
2017. On May 15, 2017, Bong resigned and was replaced by Robby, who assumed as director on
July 15 of the same year. On November 15, 2017, Robby died. Mark was then elected in his place.
What exact date will Mark’s term as director expire?

Answer: March 14, 2018

4. (Average) Which of the following terms does NOT belong to the group based on the other choices?
D a. Delegacion
b. Subrogation
c. Expromision
d. Compensation

5. (Average) If a thing is NOT sold in its initial public auction, then the thing may be appropriated
under
A a. No circumstances
b. A contract of pledge
c. A contract of chattel mortgage
d. A contract of pledge and chattel mortgage

6. (Average) What is the liability of the following parties under a product sale warranty?
C a. Retailer and distributor (no liability), manufacturer (primary liability)
b. Retailer and distributor (secondary liability), manufacturer (primary liability)
c. Retailer (secondary liability), distributor and manufacturer (primary liability)
d. Retailer (no liability), distributor (secondary liability), manufacturer (primary liability)

7. (Difficult) Statement I: The business of a closely-held corporation may be managed by the

stockholders in lieu of the board of directors.
Statement II: A contract which is a direct result of a previous illegal contract may be valid if ratified.
Statement III: Where the name of the payee does not purport to be the name of any person, the
instrument is payable to bearer.
B a. Only statement I is false c. Only statement I is true
b. Only statement II is false d. Only statement III is true

8. (Difficult) Under Philippine laws, copyrightable works are protected

A a. Upon creation c. Upon registration
b. Upon adoption d. After examination

9. (Difficult) Which of the following is (are)a function (functions) of the Philippine Deposit Insurance
Corporation (PDIC)?
A) Loan functions
B) Deposit insurer
C) Liquidator of distressed banks
D) Co-regulator of the BangkoSentral ng Pilipinas over banking institutions

Answer: B,C,D

10. (Difficult) Which of the following terminologies is (are) allowed to be included in the name of a duly
registered cooperative?
A) “Company”
B) “Partnership”
C) “Corporation”
D) “Incorporated”

Answer: (none) – all of these terms are NOT allowed

Taxation
1. (Easy) Under the new TRAIN law, gratuitous transfer, whether intervivosor mortis causa, is subject
to a rate of:
B a. 0%
b. 6%
c. 10%
d. 12%

2. (Easy) Under the new TRAIN law, the sale of gold to BangkoSentral ng Pilipinas (BSP) is:
A a. Exempted from value added tax
b. Subject to other percentage tax
c. Subject to value added tax of 12%
d. Subject to zero-rated value added tax

3. (Easy) Philippine corporations that are required by law to pay internal revenue taxes shall keep
books of account under what set of allowed languages?
B a. Filipino or English
b. Filipino, Spanish or English
c. Filipino, Chinese or English
d. Filipino, Spanish, Chinese or English

4. (Average) A real estate dealer selling a real property based on an installment plan shall be subject to
VAT on the
C a. Selling price
b. Selling price or fair market value, whichever is higher
c. Installment payments, including actual and constructive interests and penalties
d. Installment payments, excluding actual and constructive interests and penalties

5. (Average) Assuming that the taxable year coincides with the calendar year, what is the exact latest
date should the taxpayer’s 2018 earnings be declared and paid as dividends in order to be NOT
subject to improperly accumulated earnings tax?

Answer: December 31, 2019

6. (Average) Under the new TRAIN law, donations to strangers are subject to:
D a. 30% donor’s tax based on the net amount of donation
b. 30% donor’s tax based on the gross amount of donation
c. 6% donor’s tax based on fair value of donation less P 250,000, per transaction basis
d. 6% donor’s tax based on fair value of donation less P 250,000, per calendar year basis

7. (Difficult) Amount received by the heirs of a decedent as compensation or total settlement for the
personal injuries and damages which led to the death of a decedent, representing what the decedent
would have earned as somebody who was gainfully employed during his lifetime is:
B a. Included in the decedent’s gross estate because it is a claim against a third person and
therefore, receivable by the estate.
b. Not included in the gross estate because it is not yet the decedent’s property existing at
the time of his death.
c. Included in the decedent’s gross estate because, as a rule, income to be earned are
deemed owned at the time of death.
d. Not included in the decedent’s gross estate because all compensation or total settlement
for personal injuries are not subject to estate tax.

8. (Difficult) An informer was instrumental in the actual recovery of P 15,000,000 worth of revenues
and surcharges due to discovery of violations in the provisions of the National Internal Review Code.
How much was the informer’s reward, net of applicable final withholding tax?

Answer: P 900,000

9. (Difficult)The income tax return for the calendar year 2013 was due for filing on April 15, 2014. The
tax due was P 100,000. The taxpayer voluntarily filed his tax return without notice from the BIR only
on June 30, 2014. Using a 365-day year, how much was the interest on delinquency (rounded off to
the nearest peso amount)? NOTE: use applicable tax laws in the corresponding years.

Answer: P 4,155

10. (Difficult) During the current year, a nonresident alien not engaged in trade or business came to the
Philippines to fulfill a contract commitment. He stayed at one of the five-star hotels in Makati City for
which he paid a fringe benefit tax of P 30,000. How much was the hotel bill shouldered by his local
contact?

Answer: P 90,000.
TIE-BREAKER QUESTIONS
1. (FAR) What is the only quick asset that is subject to impairment losses?

Answer: Receivables

2. (MAS) Return on sales is 5%, assets turnover is 2.0, and return on equity is 40%. Assuming that
there is no preferred stock outstanding, what is the debt-equity ratio?

Answer: 3.0

3. (TAX) A non-resident alien not engaged in trade or business is liable for a fringe benefit tax of P
2,400. What is the monetary value of the fringe benefit received by the taxpayer?

Answer: P 7,200

4. (MAS) What is the discounted cash flow rate of return for a 2-year capital investment project costing
P 504,000 with an annual cash flow of P 350,000?

Answer: 25%

5. (MAS) Determine the annual cost of trade credit if James Company purchases merchandises on
terms 1/10, n/40. Round-off percentage to the two decimal places.

Answer: 12.12%