Working Capital, Quality Management, cash flow

Charlie obtained a short-term bank loan for P1M at an annual interest of 12%. As a condition of
the loan, the company is required to maintain a compensating balance of P200,000 in its
savings account which earns interest at an annual rate of 6%. The company would otherwise
maintain only P100,000 on the savings account for transactional purposes. The effective cost of
the loan is? Answer: 12.67%

A company obtained a short-term bank loan of P500,000 at an annual interest of 6%. As a

condition of the loan, the company is required to maintain a compensating balance of P100,000
in its checking account. The company’s checking account earns interest at an annual rate of 2%.
Ordinarily, the company maintains a balance of P50,000 in its checking account for transaction
purposes. What is the effective interest rate of the loan? Answer: 6.44%

Belle Corporation is planning to change its credit policy. The proposed change is expected to:

*shorten the collection period from 75 days to 50 days

*increase the ratio of cash sales total sales from 30% to 40%
* decrease total sales by 5%

If projected sales for the coming year is P50M, what is the peso impact on the average accounts
receivable balance of the proposed change in credit policy? (Use 360 days in a year)

Answer: P3,333,334 decrease

Anne Company’s average monthly cash receipts is P1,500,000. Its average collection period is
10 days. A collection agency has offered to be the company’s collector and shorten collection
period to 4 days for a monthly fee of P2,500. The company can invest its excess funds in money
market placements at a rate of 8%. If the collection agency’s offer is accepted, Anne Company’s
net annual benefit (loss) is Answer: (P6,000)

Daisy Animators, Inc. currently makes all sales on credit and offers no cash discount. The firm
is considering a 3% cash discount for payment within 10 days. The firm’s current average
collection period us 90 days, sales are 400 films per year, selling P25,000 per film, variable cost
per film is P18,750, and the average cost per film is P21,000. The firm expects that the change
in credit terms will result in a minor increase in sales of 10 films per year, that 75% of the sales
will take the discount, and the average collection period will drop to 30 days. The firm’s bad
debts expense is expected to become negligible under the proposed plan. The bad debt expense
is currently 0.5 percent of sales. The firm’s required return on equal-risk investments is 20%.

What is the net result of granting the cash discount? Answer: +128,750

B Company had the following data from its records for the year ended December 31, 2013:

Net credit sales P576,000 Average finished goods inventory P12,000

Net credit purchases 120,000 Average accounts receivable 80,000
Raw materials used 96,000 Average accounts payable 12,000
Ave. materials inventory 8,000 Gross profit rate 25%

Compute the average number of days in B’s operating cash conversion cycle, using a 360-day
year. Answer: 54 days

The Good Company plans to have P4M in steady cash outlay for next year. The company
believes that it will face an opportunity interest rate of 10% and will incur a cost of P40 each
time it borrows. The ECQ is P56, 570. What is the total cost for one year of holding the optimal
cash balance. Answer: P5,669
Martin Company sells on terms of 5/10, net 20 days. Gross sales for the year are P2.4M and
one-third avail the discount. What is the average collection period?

Answer: 17 days

The costs that follow appeared on Omaha’s quality cost report:

Warranty cost P15,000 Quality training 31,000

Raw materials inspection 10,000 Cost of processing complaints 5,500
Cost of market research 18000 Rework of defective units 12,800
Cost of scrap and waste 7,000 Customer returns 6,000
Cost of test equipment 3,000

The sum of appraisal and internal failure costs is: P32,800 pero P46,300 sa answer key

The costs that follow appeared on Marie’s quality cost report:

Design reviews P275,000

Finished goods returned due to failure 55,000
Freight on replacement of finished goods 27,000
Labor inspection during manufacturing 75,000
Labor inspection raw materials 32,000
Manufacturing product-testing labor 63,000
Manufacturing rework labor and overhead 150,000
Materials used in warranty repairs 68,000
Process engineering 180,000
Product liability claim 145,000
Product test equipment 35,000
Repairs equipment maintenance 22,000
Schedule equipment maintenance 90,000
Scrap 125,000
Training 156,000

The preventive cost is Answer: P701,000

G Company provided the ff data for the preparation of the statement of cash flows for the
current year:

Net income P81,000 Decrease in accounts payable 35,000

Increase in AR 102,000 Gain on sale 47,000
Decrease in mdse inventory 18,000 Depreciation expense 32,000

How much should be reported as net cash flow from operating activities? Answer: (P53,000)

Which of the following costs would be classified as an external failure cost on a quality report?

a. Reliability engineering c. Rework

b. Materials inspection d. Warranty repairs

Fair Value Measurements, NCA Held for sale, Related party

The fair value of an asset should be based upon

a. The replacement cost of an asset

b. The price that would be received to sell the asset at the measurement date
c. The original cost of the asset plus an adjustment for obsolescence
d. The price that would be paid to acquire the asset
The fair value of an asset at initial recognition is

a. The price paid to acquire the asset

b. The price paid to acquire the asset less transaction costs
c. The price paid to transfer or sell the asset
d. The book value of the asset acquired

A change in valuation techniques used to measure fair value should be reported as

a. A change in accounting principle with retrospective restatement

b. An error correction with restatement of the FS of previous periods.
c. A change in accounting estimate reported on a prospective basis
d. An extraordinary item on the current year’s income statement

When measuring fair value, which level has the highest priority for valuation inputs?

a. Level 1 b. Level 2 c. Level 3 d. Level 4

Non-adjusting events after reporting period which require disclosure include all of the ff, except:

a. Plan to discontinue an operation

b. Expropriation of assets by government after end of reporting period
c. Destruction of a major production plant by a fire at the end of reporting
period
d. A business combination after end of reporting period

Disclosures of related party transactions include all of the ff, except

a. Nonmonetary exchange by affiliates

b. Sales of inventory by a subsidiary to its parent
c. Expense allowances for executives which exceed normal business practice
d. An entity’s agreement to act as surety for a loan to its CEO

Which of the ff is accounted for as a change in accounting policy?

a. A change in the estimated useful life of plant assets

b. A change from the cash basis of accounting to the accrual basis of accounting
c. A change from expensing immaterial expenditures to deferring and amortizing them as
they become material
d. A change in inventory valuation from average cost to FIFO

A company using a perpetual inventory system neglected to record a purchase of merchandise

on account at year end. This merchandise was omitted from the year-end physical count. How
will these errors affect assets, liabilities, and shareholders’ equity at year end and net income for
the year?

Assets Liabilities Shareholders’ equity Net income

a. No effect understate overstate overstate
b. No effect overstate understate understate
c. Understate understate No effect No effect
d. Understate No effect understate understate

Sun Company acquired 100% of Shine Company prior to 2013. During 2013, the individual
entities included in their FS the ff:
Sun Shine
Officers’ salaries P7,500,000 P5,000,000
Officers’ expenses 2,000,000 1,000,000
Loans to officers 12,500,000 5,000,000
Intercompany sales 1,500,000
What total amount should be reported as related party disclosures in the notes to Sun’s 2013
consolidated FS? Answer: P30M

Early Inc. is a calendar-year corporation whose FS for 2013 and 2014 included errors as follows:

Year Ending inventory Depreciation expense

2013 P162,000 overstated P135,000 overstated
2014 54,000 understated 45,000 understated
Assume that purchases were recorded correctly and no correcting entries were made at
December 31, 2013 or at December 31, 2014. Ignoring income taxes, by how much should
Early’s retained earnings be retroactively adjusted at January 1, 2015?
Answer: P144,000 increase

Black Company is a calendar-year company. Its FS for 2013 and 2014 contained errors as
follows:

December 31, 2013 inventory overstated P262,500

December 31, 2014 inventory understated 750,000
Depreciation for 2013 overstated 187,500
Depreciation for 2014 understated 60,000
December 31, 2013 prepaid insurance understated 37,500
December 31, 2014 unearned rent overstated 30,000
December 31, 2014 accrued salaries 150,000
What is the effect of the errors on net income for 2014? Answer: P795,000 understated

CVP and responsibility accounting

Sandy Corporation operates 2 stores: J and K. The following information relates to store J:

Sales revenue P1,300,000

Variable operating expenses 600,000
Fixed expenses:
Traceable to J and controllable by J 275,000
Traceable to J and controllable by others 80,000
J’s segment contribution margin is: Answer: P700,000

Trisha has sales of P200,000, contribution margin ratio of 20%, margin of safety of P80,000.
How much is the fixed cost? Answer: P24,000

The ff are the selected item for B Corp for the year ended December 31, 2013:

Net operating profit after tax P36M Capital expenditures 12M

Depreciation expense 15M Invested capital 100M
Change in working capital 10M WACC 10%

The economic value added is Answer: P26M

The ff are the selected item for A Corp for the year ended December 31, 2013:

Net operating profit before taxes P30M Invested capital 50M

Depreciation expense 9M Tax rate 40%
Change in working capital 5M
Capital expenditures 8M COC 10%

The economic value added is Answer: P13M

Given:
Investment P250,000 CMR 42%
Interest rate 8% Selling price P15
Fixed cost 122,500 EBIT 32% of invested capital

Number of units sold Answer: 32,143 units

M Corporation reports the ff information:

Net cash provided by operating activities P215,000
Average current liabilities 150,000
Average long-term liabilities 100,000
Dividends paid 60,000
Capital expenditures 110,000
Payments of debt 35,000
M free cash flow is Answer: P45,000

Given:
Break-even sales P780,000 Variable expense 60% of sales
Margin of safety 130,000

How much is the contribution margin? Answer: P364,000

Capital Budgeting
Heavy Investment Co. is considering an investment in a labor-saving machine. Information on
this machine follows:

Cost P30,000 Annual depreciation P6,000

Salvage value in 5 years 0 Annual reduction in existing costs P8,000
Estimated life 5 years

What is the IRR on this project (round to the nearest ½%)? Answer: 10.5%

Dude Co. is involved in the evaluation of a new computer-integrated manufacturing system. The
system has a projected initial cost of P1M. It has an expected life of 6 years, with no salvage
value, and is expected to generate annual cost savings of P250,000. Based on Dude Co.’s
analysis, the project has a net present value of P57,625.

What is the project’s profitability index? Answer: 1.058

Given:

Equipment P50,000 cash inflow 20,000

Working capital 30,000 ROR 20%
Salvage value 0 life 8 years

Net present value Answer: P3,730

Given:

Equipment P50,000 with useful life of 5 years; Present value of 1 is 4.10

Revenue P40,000
Opportunity cost (18,000)
Depreciation (10,000)
Contribution net income P12,000

What is the profitability index? Answer: 1.804

Agamata p. 870 #104

Quantitative Techniques

In PERT, slack is the

a. Uncertainty associated with time estimates

b. Path that has the largest amount of time associated with it
c. Excess time available in the completion of the project after crashing the
critical path
d. Number of days an activity can be delayed without forcing a delay for the entire project

When using PERT, the expected time for an activity when given an optimistic time (a),
pessimistic time (b) and most likely time (m) is calculated be which one of the ff formulas?

a. 4amb/6 c. (b-a)/6
b. (a+4m+b)/6 d. (b-a)/2

The critical path through the network is the

a. Shortest path c. Longest path

b. Path with the most nodes d. Path with the most slacks

Expected value criterion in decision analysis is

a. The measure of the difference between the best possible outcome and the outcome of the
original decision
b. The standard deviation divided by the coefficient of variation
c. The arithmetic mean using the probabilities as weights
d. The standard deviation of the probability weights

The modeling technique used to situations involving sequence of events with several possible
outcomes associated with each event is

a. Network analysis c. decision tree analysis

b. Linear programming d. queuing technique

Which of the ff can be used to make predictions or estimates of the values of the dependent
variable from given independent variable?

a. Sensitivity analysis c. markov analysis

b. Regression analysis d. linear programming

Green Company uses the ff model to determine its product mix for metal (M) and scrap metal
(S): Max. Z = P30M and P70S

CF: 3M+2S≤15; 2M+4S≤18, M and S are non-negative value

The two inequality functions are

a. Contributions b. shadow prices c. conditions d. Constraints

The point at which M=2 and S=3 would be

a. Minimum cost c. be a feasible point

b. Lie in a corner d. be an infeasible point
Two activities along the critical path are candidates for crashing on a CPM network. Activity
details are in the table below:

Activity Normal time Normal cost Crash time Crash cost

B 4 days P6,000 3 days P6,600
C 6 days 4,000 4 days 6,000
To cut 1 day from the project duration time, which activity ___ should be crashed first, adding
___ to project cost. Answer: B, P600

Orange Distributors of compact disc is developing its budgeted cost of goods sold for 2013. The
distributor has developed the ff range of sales estimates and associated probabilities for the
year.

Sales estimates Probability

P70,000 25%
95,000 40%
110,000 35%

Orange Distributors’ cost of goods sold averages 75% of sales. What is the expected value of
Orange Distributors’ cost of goods sold in 2013? Answer: P70,500

A wine maker must decide whether to harvest grapes now or in 4 weeks. Harvesting now will
yield 100,000 bottles of wine netting him P2.00 per bottle. If the wine maker waits and the
weather is cold at probability of 20%, the yield will be cut in half but net P3.00 per bottle. If the
weather does not turn cold, the yield will depend on rain. With rain at probability of 50%, a full
yield netting P4.00 per bottle will result. Without rain, there will still be a full 100,000 bottle
yield but the net is P3.00 per bottle. What is the optimal expected value?

Answer: P310,000

A company made the first of a new product in 100 hours. At an 80% learning rate, the total time
for the first four batches is Answer: 256 hours

Mandarin Company makes only two products with the ff constraints representing 2 machines
and their maximum availability: 2x + 3y ≤ 18 and 2x + y ≤ 10

If the profit equation is Z = 4x + 2y, then what is the maximum possible profit?

Answer: P20

Norlene Company has excess capacity on two machines, 24 hours on machine 105 and 16 hours
on machine 107. To utilize this excess capacity, the company has two products, known as
Product D and Product F, that must use both machines in manufacturing. Both have excess
product demand, and the company can sell as many units as it can manufacture. The company’s
objective is to maximize profits. Product D has an incremental profit of P6 per unit, and each
unit utilizes 2 hours of time on Machine 105 and then 2 hours of time on Machine 107. Product
F has an incremental profit of P7 per unit, and each unit utilizes 3 hours of time on Machine 105
and then 1 hour of time on Machine 107. Let D be the number of units for Product D, F be the
number of units for product F, and P be the company’s profit. A feasible solution for Norlene
Company is where Answer: D=6 and F=4

The company manufactures 2 lines of machines, Regular and Deluxe. The contribution margin
of a Regular model is P110 and a Deluxe model P175. The co. has 2 departments, assembly and
testing. The Regular model requires 3 hours to assemble, while a Deluxe model requires 4
hours. The total time available in assembly is 12,000 hours. In the testing department, it
requires 2.5 hours to test a Regular model and 1.5 hours to test a Deluxe model. A total of 6,000
hours of testing time is available. To maximize profit, the co. should manufacture:
Answer: 3,000 Deluxe model
An activity in a PERT network is expected to require 27 days to complete. This estimate was
calculated using the PERT formula based on an optimistic completion time of 24 days and a
most likely completion time of 25 days. What estimate was used for the pessimistic completion
time? Answer: 38 days

Given:

S1 S2 S3
D1 P24 P14 (P6)
D2 20 10 5
D3 (20) 8 15
Probability 10% 50% 40%

The expected value of perfect information Answer: P6.40

He is considering selling peanuts at football games. The peanuts costs P0.50 per bag and could
be sold for P1.50 per bag. No other costs would be incurred to sell the peanuts. All unsold bags
can be returned to the supplier for p0.30 each. He estimated the demand for peanuts at each
game and constructed the payoff table that follows.

Demand (bags) probability 20 30 40 50

20 20% P20 P18 P16 P14
30 40% 20 30 28 26
40 30% 20 30 40 38
50 10% 20 30 40 50
Expected value of action 10% P20 P27.60 P30.40 P29.60

Optimum number of bags of peanuts to stock is Answer: 40

Maximum that he should pay for perfect information so that he could always stock the correct
number of bags of peanuts Answer: P2.60

*di ko mahanap ung questions

1. Critical path A-B-D-F-I

2. Completion time 14 days
3. P350
50% 30% 20%
Stock 1500 300 (800)
MF 900 600 (200)
C.O.D 500 500 500
Solution:
(horizontally highest)
Stock 750 90 (160) =P680 highest
MF 450 180 (40) =590
C.O.D 250 150 100 =500
(vertically highest)
Stock (1500*50% = 750) + MF (600*30%) + C.O.D (500*20%) = P1030

P1030-680= P350

4. P40
5. Slack time = 3 days

6. Agamata p.1139 #34-36

7. Agamata p. 1152 #60,61
 8. Agamata p. 1142 #40
9. Agamata p. 1164 #83
10. MAS ROQUE 2O11 p.718 #46. 47

ECONOMICS

Theories

1. Agamata p. 1329 #1 5. Agamata p. 1339 #67,69

2. Agamata p. 1330 #10 6. Agamata p. 1340 #74,76
3. Agamata p. 1331 #14, 15 7. Agamata p. 1342 #87
4. Agamata p. 1333 #29 8. Agamata p. 1345 #109

Problem

1. Agamata p. 1340 #77 Marginal propensity to consume 0.75

2. Cabrera P11-92 #8
Given:
GNP P4000
Transfer payments 500
Corporate income tax 50
SSS 200
Indirect tax 210
Personal tax 250
Undistributed corporate profits 25
Depreciation 500
Net income earned abroad for the country 0

Net domestic product = P3500

Disposable income = P3265

Joe has an income of P3,000 and spends P2,500. His income increases to P3,500 and
spends P2,800. What is the marginal propensity to save? Answer: 0.40

SINGLE-ENTRY/ CASH ACCRUAL/error

1. Ocampo Aud Prob p.592 #1, 3 (including depreciation) , 4
2. Ocampo Aud Prob p.602 Prob11 #2
3. Prac1 2010 edition p.1065 P59-4 Prac1 2010 edition p.1068 P59-8
4. Prac1 2010 edition p.1054 P58-12 Prac1 2010 edition p.1090 P60-18
5. Prac1 2010 edition p.1051 P58-10 Prac1 2010 edition p.1120 P61-20

Statement of FS
1. Prac1 2010 edition p.13 P1-13 4. Prac1 2010 edition p. 136 P8-12
2. Prac1 2010 edition p. 114 P7-1
3. Prac1 2010 edition p. 130 P8-5 5. Prac1 2010 edition p. 139 P8-15

Yellow Company had a balance of P700,000 on its retained earnings at January 1, 2013. During
the year ended December 31, 2013, the company

 Revalued property with a cost of P1M and accumulated depreciation of P600,000 to

P1.2M. No annual transfers between reserves are to be made.
 Issued shares at a premium of P100,000
 Made a profit for the year of P400,000
On December 1, 2013 the directors declared a dividend of P250,000 for the year ended
December 31, 2013, which was paid shortly after the year end.

In accordance with PAS 1, what is the closing balance on retained earnings in Yellow’s statement
of changes in equity for the year ended December 31, 2013.

Answer: P850,000

On July 1, 2013, Earl Co. has a building with a cost of P4M and accumulated depreciation of
P1.6M. On the same date, Earl Co. commits to a plan to sell the building by February 1, 2014.
The building has a fair value of P2M and it is estimated that the selling cost of the building will
be P150,000. As of July 1, 2013, the building has a remaining useful life of 15 years. What is the
amount of loss to be recognized by Earl Co. in its statement of comprehensive income as a result
of reclassification?

Answer: P550,000

During the year ended December 31, 2013, Tara Corp. undertook the ff transaction:

 Issued 100,000 P1 ordinary shares at a price of P1.20 per share

 Sold PPE for P10,000
 Purchased PPE for P109,000
 Paid P25,000 off long-term borrowings

What total amounts in respect of the above will appear in cash flows from investing activities
and cash flows from financing activities in the statement of cash flows of Tara Corp. for 2013 in
accordance with PAS 7? Answer: Cash inflow(outflow) investing activities (P99,000) ;
financing activities P95,000

Valerie Company acquired a machine on January 1, 2007 for P70,000. On January 1, 2010,
when the carrying amount of the machine was P40,000, the machine was classified as held for
sale. Its fair value was estimated at P30,000 and costs to sell at P500. The asset was sold on
June 30, 201for P32,000. In accordance with PFRS5, what amount will be recognized in respect
of this asset in Valerie Company’s income statement for the year ended December 31, 2010?

Answer: Impairment loss P10,500 Profit on sale P2,500

Given:

Sales discount P17,000 cost of goods sold P500,000

Interest expense 20,000 4/5 of operating expense pertains to sales activities
Income tax rate 30% revaluation surplus 20,000
Administrative expenses 20% of cost of goods sold, 8% of net sales

Total comprehensive income Answer: P175,000

Given:

Net sales P580,000 Goods in process, end P75,000

Cost of goods manufactured 480,000 Finished goods, end 55,000
Goods in process, beginning 82,000 selling expense is 5% of cost of goods sold
Finished goods, beginning 65,000 administrative expense is 2.5% of cost of goods sold

Net profit before tax is Answer: P53,250

 Tax

The periodic decrease in the value of a fixed asset due to wear and tear, obsolescence or
inadequacy

a. depletion b. depreciation c. capital loss d. special loss

The following conditions shall be observed when there is a net capital loss carry over:

a. The loss carried over is for a holding period not exceeding 12 months
b. The amount of the loss should not exceed the income before exemptions in the year when the
loss was sustained
c. The taxpayer should not be a corporation
d. All of the above

Which of the following VAT transactions are not considered zero-rated?

a. Export sales of goods

b. Domestic sale of goods in the regular course of trade or business
c. Foreign currency denominated sale
d. Sale of gold to Bangko Sentral ng Pilipinas

Tino is engaged in buying and selling of fresh fruits at the Q-Mart and Aranque Markets. He is
also exporting canned and preserved fruits to Japan. In 2004, he made a gross sales of
P2,000,000. He is liable for VAT registration fee of :

a. P500 b. P1,000 c. P1,500 d. Exempt

The manufacture of casino rubbing alcohol is subject to:

a. VAT b. percentage tax c. specific tax d. advalorem tax

A tax imposed at every stage of distribution process on the sale, barter or exchange of goods
and services and transactions deemed sale, as well as importation of goods
andservices.

a. Privilege tax b. percentage tax c. VAT d. excise tax

Income tax is not a

a. Personal tax b. national tax c. excise tax d. direct tax

Basically, power of taxation is exercised by

a. The President b. the Congress c. Judiciary d. BIR

The following are the requisites for income to be taxable, except:

a.There must be gain or profit

b.The gain must be received or realized
c.The gain must not be excluded by law or treaty from taxation
d.The income must exceed the personal and additional exemptions of the taxpayer
Under RA 9337, a presumptive input tax credit is allowed to processors/manufacturers of milk, sardines,
mackerel, refined sugar, cooking oil, and packed noodle-based instant meals at the rate of:
a 1 . 5 % b 4 % c 2 % d 8 %

F o r t a x p u r p o s e s , i n c o m e i s s y n o n y m o u s
t o :
a . C a p i t a l b . R e c e i p t s c.Realized profit d.None
T h e f o l l o w i n g c a n a v a i l o f t h e I n p u t T a x
C r e d i t , e x c e p t :

a.Importer of goods/articles previously subjected to VAT

b.Purchaser of domestic goods upon consummation of the sale
c.Exporter of goods and services not registered under the VAT system
d.Purchaser of services, lessee or licensee upon payment of compensation, rental,royalty or fee

Educational services rendered by private educational institutions are exempt from VAT if duly
accredited by the following, except:

a.Securities and Exchange Commission

b.Commission on Higher Education
c.Department of Education, Culture and Sports
d.Technical Education and Skills Development Authority

For VAT purposes in connection with deferred payment

s a l e o f r e a l p r o p e r t y , t h e t e r m “initial payments” shall include:
a.Payments made in the year of sale in addition to the down payment
b.Mortgage on the real property sold not exceeding the cost thereof
c.Evidence of indebtedness issued by the purchaser to the seller at the time of sale
d.Down payment only made at the time of sale.

In our jurisdiction, which of the following

statements may be erroneous?
a.Taxes are pecuniary in nature.
b.Taxes are enforced charges and contributions.
c.Taxes are imposed on persons and property within the territorial jurisdiction of a
State.
d.Taxes are levied by the executive branch of the government

A seller of goods is not VAT-registered. His annual gross sales amount to P1,919,500. To what
business tax is he liable?
a. 3% tax on VAT-exempt persons c. 3% common carrier’s tax
b. 12% VAT d. Not subject to any percentage tax
The operator of one of the following places is not subject to amusement tax:
a. Cockpits c. Bowling alleys
b. Racetracks d. KTV karaoke joints

Which of the following percentage taxes is paid on a quarterly basis?

a. Common carrier’s tax c. Tax on winnings
b. Amusement tax d. Stock transactions tax

Payments made by government to business shall be subject to the VAT in the manner of
government will withhold an amount of 5% of the gross selling price.

The VSM is engaged in buying sugar cane from sugar cane planters in the provinces of CamSur
and Albay and produce them into sugar. During the month, VSM was able to purchase P1M
worth of sugar cane. Of the total production during the month, white sugar composes 60%; 35%
of raw sugar while the remaining 5% is consist of bagasse. The total sales (exclusive of tax)
based on the production amounted to P2,000,000 while the input tax on purchases of other
materials and supplies amount to P35,000.
How much is the VAT payable of VSM? Answer: P179,000
How much is the presumptive input tax? Answer: P26,000

RT has the following winnings (losses) during the year:

Cockfighting 90,000
Philippine Charity Sweepstakes 2,000,000
Lotto (PAGCOR) 1,000,000
Horseracing Winnings 100,000 (Cost of 2 tickets P2,000)
The percentage tax on winnings is Answer: P9,800 pero sa answer key P9,900
ABC Company operates a water and radio broadcasting franchise provides the following in 2014:

Gross receipts Operating expenses 5,000,000

Water franchise 2,000,000 Net income 7,000,000
Radio franchise 10,000,000
The total percentage tax on franchise is Answer: P340,000

A carrier, common carrier by land, provides the following average gross annual receipts:

Transport of passenger P10M; transport of goods and cargoes P8M; sale of goods during travels
P600,000. How much is the estimated percentage tax on the 4th quarter?

Answer: P75,000

Dugong Trans, is a common carrier by land. During a particular quarter its receipts consist of
the following: (Figures are net of any business taxes)

Transport of passenger P4M; transport of goods P5M; transport of cargoes P6M. How much is
the total business tax payable? Answer: P1,440,000

Saulog is a common carrier with passenger buses and cargo trucks. For the month of June 2015,
it had the following data on revenues and receipts, taxes not included:

For transporting passengers, gross revenues and receipts of P330,000.

For transporting cargoes, gross revenues of P220,000, of which P200,000 was received.

For renting out to the MMDA its towing trucks, gross receipts of P50,000, representing P10,000
from gross revenue of the quarter ending March 31 and P40,000 for the month of June. The
total percentage tax is: Answer: P9,900

Taxpayer is VAT-registered. Importations were for:

Any value-added tax not included. Sale Own use

Invoice cost (exchange rate is $1: P56) $80,000 $4,000

Expenses based on cost:
Freight and insurance 4% 4%
Other expenses up to the point of removal from customs house 6% 6%
Transfer expenses from customs house to warehouse in Manila ½% ½%

Selling price of goods imported for sale within the same taxable period of importation, VAT
included, was P6,720,000.

The VAT payable on the sale is: Answer: P128, 640 pero sa answer key P99,072

The record of a closely held corporation, registered with BIR, reveals the following:

2010: Gross Income P3,000,000

Less: expense 3,800,000
Net operating loss (P800,000)
Accumulated retained earnings, end of 2010 P6,000,000
2011: Gross income 5,000,000
Expenses 3,000,000
Rent income, net of 5% withholding tax 475,000
Interest on money market placement, net of 20%WT 80,000
Inter-corporate dividends received 500,000
Dividends paid by the corporation 1,500,000

It had a paid-up capital stock of P5M as of December 31,2011.

Upon examination, the BIR concludes that there is an improper accumulation of profit. The
corporation fails to show proof to prove the contrary.

How much is the tax on the improper accumulated income in 2011? Answer: P207,000

Mayaman Co. owns a fleet of motor vehicles. In 2010, one of the cars which was acquired at a
cost of P400,000 was allowed as service vehicle by one of its officials. During the year, its book
value amounted to P375,000. How much was the fringe benefit tax due thereon?

Answer: P18,823

XYZ Corporation has the ff data:

Net revenue P700,000
Interest income from bank deposit P7,000
Dividend income received from domestic corporation 6,000 13,000
Cost of services and operating expenses P40,000
Bad debt expense (provision) 8,000
Charitable contribution – full 50,000
Charitable contribution – limited 50,000
Representation expenses 200,000
Donation to typhoon victims 60,000 (408,000)
Net profit P305,000

Per income tax return, the taxable income is Answer: P570,350

A domestic corporation has the ff items of income and deductions:

Gross income (including interest from bank deposit, P20,000;

Rent income, P20,000) P10,000,000
Other income (including cash dividend, P20,000; interest income
from deposit substitute, P40,000) 5,000,000
Operating expenses (including allowance/provision for bad debts, P100,000;
Depreciation, P300,000) 5,000,000

How much is the total final tax? Answer: P12,000

How much is the total exempt income? Answer: P20,000
How much is the taxable net income using OSD? Answer: P8,952,000
How much is the taxable net income using itemized deductions? Answer: P10,020,000

A VAT-registered trader has the following transactions:

Sales of goods to private entities, net of 12% VAT P2,500,000

Purchases of goods sold to private entities, gross of 12% of VAT 896,000
Sales to a GOCC, net of 12% of VAT 1,000,000
Purchases of goods sold to GOCC, net of 12% VAT 700,000

How much is the standard input tax? Answer: P70,000

How much is the VAT payable? Answer: P204,000

How much is the withholding VAT? Answer: P50,000

How much is the creditable input tax on sale to private entities? Answer: P96,000
A domestic bank had the following data in a month:

Rentals from safety deposit boxes and real property acquired through
mortgage foreclosures P300,000
service fees 200,000
dividends and equity shares in the net income of subsidiaries 500,000
amounts received from lending activities on instruments with maturities of:
5 years and less 800,000
More than 5 years 900,000

How much is the percentage tax for the month? Answer: P84,000

The records of a taxpayer Domestic Corporation shown below:

Gross Income P10,000,000

Expenses connected therewith 7,000,000
Other income
Dividend from domestic corporations
60% of its income came from the Philippines source 200,000
40% of its income came from the Philippines source 100,000
Dividend from resident foreign corporations
60% of its income came from the Philippines source 160,000
40% of its income came from the Philippines source 80,000
Dividend from a non-resident foreign corporation 40,000

The taxable income Answer: P3.28M

The taxpayer had the ff data in 2014:

Revenues P1,450,000
Cost of services 565,300
Allowable deductions 325,800
Capital gain from capital asset short-term holding period 25,500
Capital loss from capital asset long-term holding period 6,000

If the taxpayer is a domestic corporation, availed of the OSD, what amount would be
reported as taxable income? Answer: P542,520

The ff are items of income and expenses:

Gross receipts P500,000
Cost of services, salary of personnel 250,000
Dividend received from domestic corporation 25,000
General and administrative expenses 25,000
Direct cost 15,000

The gross income for MCIT purposes Answer: P210,000

For the year ended December 31, 2014, J Corp had net income per books of P300,000 before
taxes. Included in the net income were the ff items:

Dividend income from an unaffiliated domestic taxable corporation P50,000

Bad debts expense (represents the increase in allowance for doubtful accounts) 80,000

What was J taxable income for the year ended December 31, 2014? Answer: P330,000
ABC operates a variety of stores that is not registered under the VAT system. His annual gross
sales during the year amounted to P1.6M, net of any tax, 60% of which is on account. Business
tax due assuming his operations resulted to net loss is Answer: P48,000

AMPONGAN Reviewer 8th ed. Page 487 #7

AMPONGAN Reviewer 8th ed. Page 491 #16 (not exceeding 30 passengers)
AMPONGAN Reviewer 8th ed. Page 492 #17-18 (not exceeding 30 passengers)
AMPONGAN Reviewer 8th ed. Page 501 #38-39
AMPONGAN Reviewer 8th ed. Page 149 #129
AMPONGAN Reviewer 8th ed. Page 463 #78
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An accounting device for accumulating increases or decreases of business transactions.

a. Account c. Trial balance

b. Journal d. Worksheet

Least likely to affect FOREX rates

a. Tax rate b. Political stability c. Interest rate d. Inflation

Restrictive barrier to exporting

a. Embargoes b. Tariffs c. Quota d. Exchange control

Interim FS are usually prepared on a quarterly basis.

Conceptually, interim FS can be described as emphasizing timeliness over reliability.

Start-up operation before earning revenue can be considered an operating segment.

An auditor usually examines receiving reports to support entries in the

a. Voucher register and sales return journal

b. Sales journal and sales return journal
c. Voucher register and sales journal
d. Check register and sales journal

A client maintains perpetual inventory records in both quantities and pesos. IF the assessed
level of control risk is high, an auditor would probably

a. Increase the extent of test of controls of the inventory cycle

b. Request the client to schedule the physical inventory at the end of the year
c. Insist that the client perform physical counts on inventories several times during the
year
d. Apply gross profit tests to ascertain the reasonableness of physical counts

An auditor concluded that no excessive costs for idle plant were charged to inventory. This
conclusion most likely related to the auditors objective to obtain evidence about the FS
assertions regarding inventory

a. Rights and obligations c. existence

b. Valuation d. completeness

An auditor selected items for test counts while observing a client’s physical count of inventory.
The auditor then traced the test counts to the client’s inventory listing. This procedure most
likely obtained evidence concerning management assertion of

a. Rights and obligations c. existence

b. completeness d. Valuation
In auditing investments for proper valuation, the auditor should not recalculate gain or loss
on disposals.

An audit procedure that provides evidence about proper valuation of marketable securities
arising from a short-term investment of excess cash is
a. Comparison of carrying value with current market quotations.
b. Confirmation of securities held by broker.
c. Recalculation of investment carrying value by applying the equity method.
d. Calculation of premium or discount amortization.

In auditing intangible assets, an auditor most likely would review or computed amortization and
determine whether the amortization period is reasonable in support of management’s FS
assertion of

a. Valuation c. completeness
b. existence d. Rights and obligations

When auditing inventories, an auditor would least likely verify that

a. the FS presentation of inventories is appropriate

b. damaged goods and obsolete items have been properly accounted for
c. all inventories owned by the client are on hand by the time of the count
d. the client has used proper inventory pricing

When considering the use of management’s written representations as audit evidence about the
completeness assertion, an auditor should understand that such representations complement,
but do not replace, substantive tests designed to support the assertion.

A company holds bearer bonds as short-term investments. Responsibility for the custody of
these bonds and for the submission of coupons for periodic interest collections probably should
be delegated to the

a. chief accountant c. cashier

b. internal auditor d. treasurer

A company had temporarily excess funds to invest. The board of directors decided to purchase
marketable securities, and it assigned the future purchase and sale decisions to responsible
financial executive. The best person to make periodic reviews of the investment activity would
be the

a. investment committee of the BOD c. corporate controller

b. treasurer d. chief operating officer

If an auditor is unable to inspect and count a client’s investment securities until after the
balance sheet date, the bank in which the securities are held in a safe deposit box should be
asked to confirm that there has been no access to the box between the balance sheet
date and the security count date.

An auditor who physically examines securities should insist that the client representative be
present in order to acknowledge the receipt of securities returned.

When an auditor concludes that there is substantial doubt about a continuing audit client’s
ability to continue as a going concern for a reasonable period of time, the auditor responsibility
is to consider the adequacy of disclosure about the client’s possible inability to
continue as a going concern.
What type of opinion should be expressed if the client’s management refuses to provide a
representation that the auditor considers necessary?

a. Qualified opinion or a disclaimer of opinion

b. Qualified opinion or an adverse opinion
c. adverse opinion or a disclaimer of opinion
d. unqualified opinion

The primary reason an auditor requests that letters of inquiry be sent to a client’s attorneys is to
provide the auditor with corroboration of the information furnished by management
about litigation, claims and assessments.

Management’s refusal to give the auditor permission to communicate with the entity’s legal
counsel is most likely to lead to

a. an adverse opinion
b. Qualified opinion or an adverse opinion
c. unqualified opinion
d. Qualified opinion or a disclaimer of opinion

Ocampo Reviewer in AudProb 2010 ed. Page 154 Problem 7

Ocampo Reviewer in AudProb 2010 ed. Page 525 Problem 2

FS Analysis

Given:
Sales 50M Net income 2M
Average assets 20M cost of capital 8%

Return on sales is Answer: 4%

Based on the data presented below, what is AA Corporation’s cost of sales for the year?

Current ratio 3.5

Acid test ratio 3.0
Year-end current liabilities P600,000
Beginning inventory P500,000
Inventory turnover 8.0
Answer: P3.2M

Based on the data presented below, what is MM Corporation’s net sales for the year?

Current ratio 2.0

Quick ratio 1.5
Current liabilities P120,000
Inventory turnover 8 times
Gross profit rate 40%
Answer: P800,000

Payment of a trade account payable of P64,500 would

a. increase the current ratio, but the quick ratio would not be affected.
b. increase the quick ratio, but the current ratio would not be affected.
c. Increase both the current and quick ratios
d. decrease both the current and quick ratios
To determine the operating cycle for a retail department store, which one of the ff pairs of items
is needed?

a. Days’ sales in AR and average merchandise inventory

b. Cash turnover and net sales
c. AR turnover and inventory turnover
d. Asset turnover and return on sales

Accounts receivable turnover ratio will normally decrease as a result of

a. The write-off of an uncollectible account

b. A significant sales volume decrease near the end of the accounting period
c. An increase in cash sales in proportion to credit sales
d. A change in credit policy to lengthen the period for cash discounts

The most likely strategy to reduce the breakeven point would be

a. Decrease the fixed costs and increase the contribution margin

b. Decrease both the fixed costs and the contribution margin
c. Increase the fixed costs and decrease the contribution margin
d. increase both the fixed costs and the contribution margin

Pink is considering the acquisition of a P217,750 machine that is expected to produce annual
savings in cash operating costs of P50,000 over the next 6 years. If Pink uses the IRR to
evaluate investments and the firm has a hurdle rate of 12%, which of the ff statements is correct?

a. The machine’s IRR is less than 4%, and the machine should not be acquired.
b. The machine’s IRR is approximately 10%, and the machine should not be
acquired.
c. The machine’s IRR is approximately 10%, and the machine should be acquired.
d. The machine’s IRR is approximately 12%, and the machine should be acquired.

A company that is using the IRR to evaluate projects should accept a project if the IRR

a. Is greater than the project’s net present value.

b. Equates the present value of the project’s cash inflows with the present value of the
project’s cash outflows.
c. Is greater than zero
d. Is greater than the hurdle rate

CIS

A characteristic that distinguishes computer processing from manual processing is computer

processing virtually eliminates the occurrence of computational errors normally
associated with manual processing.

Regardless of the nature of an entity’s environment, the auditor must consider internal control.
In a CIS environment, the auditor must, at a minimum, have a sufficient knowledge of the
computer information system.

Who is ultimately responsible for the design and the implementation of cost-effective controls in
a CIS environment? The entity’s management.

Misstatements in a batch computer system caused by incorrect programs or data may not be
detected immediately because there are time delays in processing transactions in a
batch system.

An auditor anticipates assessing control risk at a low level in a computerized environment.

Under these circumstances, the auditor would initially focus on general control procedures.
An auditor would most likely be concerned with access controls in a distributed data
processing system.

A company’s management is concerned about computer data eavesdropping and wants to

maintain the confidentiality of its information as it is transmitted. The company should utilize
data encryption.

The computer process whereby data processing is performed concurrently with a particular
activity and the results are available soon enough to influence the course of action being taken or
the decision being matched is called on line, real time system.

The characteristic that distinguishes EDI from other forms of electronic commerce is that EDI
transactions are formatted using the standards that are uniform worldwide.

An improved business relationship with trading partners is likely to be a benefit of

EDI.

In traditional information systems, computer operators are generally responsible for backing up
software and data files on a regular basis. In distributed or cooperative systems, ensuring that
adequate backups are taken is the responsibility of user management.

A company is concerned that a power outage or disaster could impair the computer hardware’s
ability to function as designed. The company desires off-site backup hardware facilities that are
fully configured and ready to operate within several hours. The company most likely should
consider a hot site.

The collection of like transactions that are sorted and processed sequentially
against a master file is not a characteristic of a batch processed computer system.