NFJPIA Region XII - 8th Annual Annual Regional Convention Mock Board Exaination Auditing Problems
1. Draft income income statement statement of Raffle Raffless Inc. Inc. is as as follows follows:: Sales Cost of sales Opening inventory P! P!rc"ases Closing inventory &ross profit '(penses Profit
P700,000 0,000 #$0,000 %0,000
#00,000 $00,000 )00,000 P100,000
*ow m!c" is t"e correct profit after t"e following a+!stments1/ Closing inventory incl!+es goo+s costing P)0,000 w"ic" are e(pecte+ to realie at P1%,000. )/ c!stomer "as ta2en legal action for +amages of P30,000 against Raffles. 4"e lawyer of Raffles "as a+vise+ t"e c!stomer t"at "e "as a )35 c"ance of s!ccess. $/ fter t"e 6alance s"eet +ate, a ve"icle was +amage+ in an acci+ent. 4"e carrying amo!nt of t"e ve"icle was P,000. It was not ins!re+. #/ Raffles "as s!e+ one of its competitors for P0,000. 4"e c"ance of Raffles winning t"e case is 735. 4"e o!tcome will 6e 2nown in t"ree mont"s. . . C. D .
P13%,000 P10$,000 P%%,000 P#%,000
Solution: C is correct
8na+!ste+ profit 1/ 9rite +own of inventory to its R; )0,000 < 1%,000/ )/ =oss not pro6a6le < no a+!stment $/ on>a+!sting event event after t"e 6alance s"eet +ate +ate > no a+!stment #/ &ain not virt!ally certain < no a+!stment +!ste+ profit
P100,000 1,000/ > > > P99,000
NFJPIA Region XII - 8th Annual Annual Regional Convention Mock Board Exaination
). ?o+ Company Company report reportss t"e followin following g informati information on as of Decem6 Decem6er er $1: Sales reven!e Cost of goo+s sol+ Operating e(penses 8nrealie+ gain on availa6le>for>sale sec!rities
P@00,000 00,000 %0,000 $0,000
*ow m!c" s"o!l+ t"e company report as total compre"ensive income . . C. D .
P@0,000 P110,000 P1#0,000 P)00,000
Solution: C is correct
Sales reven!e =ess: Cost of goo+s sol+ =ess: Operating e(penses mo!nt ta2en to PA= mo!nt ta2en to OCI 4otal compre"ensive income
P@00,000 00,000 %0,000 P110,000 $0,000 P140,000
$. Bo! Bo! are assigne+ assigne+ to t"e a!+it of Canon Company Company w"o spent P1),000,000 P1),000,000 +!ring t"e c!rrent year +eveloping its new software pac2age. Of t"is amo!nt, P#,000,000 was spent 6efore it was at t"e application +evelopment stage an+ t"e pac2age was only to 6e !se+ internally. 4"e 4"e pac2age was complete+ +!ring t"e year an+ is e(pecte+ to "ave a fo!r year !sef!l life. Canon Company "as a policy of ta2ing a f!ll>years amortiation in t"e first year. fter t"e +evelopment stage, P30,000 was spent on training employees to !se t"e program. 9"at amo!nt s"o!l+ Canon Company report report as an e(pense for t"e c!rrent year . . C. D .
P),01),300 P),030,000 P,01),300 P,030,000
Solution: D is correct
mo!nt spent 6efore t"e +evelopment stage mo!nt spent on training employees mortiation of t"e software pac2age 1) < #/ E # years 4otal e(pense to 6e recognie+
P#,000,000 30,000 ),000,000 P6,050,000
NFJPIA Region XII - 8th Annual Annual Regional Convention Mock Board Exaination
). ?o+ Company Company report reportss t"e followin following g informati information on as of Decem6 Decem6er er $1: Sales reven!e Cost of goo+s sol+ Operating e(penses 8nrealie+ gain on availa6le>for>sale sec!rities
P@00,000 00,000 %0,000 $0,000
*ow m!c" s"o!l+ t"e company report as total compre"ensive income . . C. D .
P@0,000 P110,000 P1#0,000 P)00,000
Solution: C is correct
Sales reven!e =ess: Cost of goo+s sol+ =ess: Operating e(penses mo!nt ta2en to PA= mo!nt ta2en to OCI 4otal compre"ensive income
P@00,000 00,000 %0,000 P110,000 $0,000 P140,000
$. Bo! Bo! are assigne+ assigne+ to t"e a!+it of Canon Company Company w"o spent P1),000,000 P1),000,000 +!ring t"e c!rrent year +eveloping its new software pac2age. Of t"is amo!nt, P#,000,000 was spent 6efore it was at t"e application +evelopment stage an+ t"e pac2age was only to 6e !se+ internally. 4"e 4"e pac2age was complete+ +!ring t"e year an+ is e(pecte+ to "ave a fo!r year !sef!l life. Canon Company "as a policy of ta2ing a f!ll>years amortiation in t"e first year. fter t"e +evelopment stage, P30,000 was spent on training employees to !se t"e program. 9"at amo!nt s"o!l+ Canon Company report report as an e(pense for t"e c!rrent year . . C. D .
P),01),300 P),030,000 P,01),300 P,030,000
Solution: D is correct
mo!nt spent 6efore t"e +evelopment stage mo!nt spent on training employees mortiation of t"e software pac2age 1) < #/ E # years 4otal e(pense to 6e recognie+
P#,000,000 30,000 ),000,000 P6,050,000
NFJPIA Region XII - 8th Annual Annual Regional Convention Mock Board Exaination #. Bo! Bo! were assigne+ assigne+ to a!+it t"e factory acco!nts acco!nts of inistops inistops Corporation Corporation for t"e t"e year en+e+ en+e+ Decem6er $1, )01). 4"e following +ata were gat"ere+: an!fact!ring cost totalle+ P%00,000. Cost of goo+s man!fact!re+ was P@00,000 of w"ic" factory over"ea+ was 735 of +irect la6or. Over"ea+ was )35 of total man!fact!ring cost. eginning wor2>in process inventory was 05 of en+ing wor2>in>process inventory. inventory. an!fact!ring costs for t"e year en+e+ Decem6er $1, )01) s!6mitte+ to yo! 6y t"e factory acco!ntant were as follows: Raw materials !se+ Direct la6or Factory over"ea+ 4otal
P#00,000 )73,000 ))3,000 P%00,000
ss!me cost percentage relations"ips as state+ were correct. 9"ic" of t"e following a+!sting o!rnal entries is correct. Raw materials !se+ Direct la6or . Direct la6or Raw materials !se+ C. Raw materials !se+ Direct la6or D. Direct la6or Raw materials !se+
P)3,000 P)3,000 P)3,000 P)3,000 P30,000 P30,000 P30,000 P30,000
Solution: B is correct
Factory over"ea+ 735 of +irect la6or/ Divi+e+ 6y 735 Direct la6or, per recomp!tation Direct la6or, !na+!ste+ +!stment to +irect la6or
P))3,000 735 $00,000 )73,000 P25,000
3. On G!ne 1, )00@, )00@, Psy Corporation Corporation p!rc"ase p!rc"ase+ + as a long term investmen investmentt ,000 of t"e P1,000 P1,000 face val!e, val!e, @5 6on+s of =yre =yre Corporation. Psy Corporation "as t"e t"e positive intention intention an+ a6ility to "ol+ t"ese 6on+s to mat!rity. mat!rity. 4"e 6on+s were p!rc"ase+ p!rc"ase+ to yiel+ 105 interest. interest. Interest is paya6le semi>ann!ally semi>ann!ally on Decem6er 1 an+ G!ne G!ne 1. 4"e 6on+s mat!re mat!re on G!ne 1, )01#. On ovem6er 1, 1, )00%, Psy Corporation Corporation sol+ t"e 6on+s for a total consi+eration of P3,@@7,300. ase+ on t"e a6ove an+ t"e res!lt of yo!r a!+it, +etermine t"e following: (Round off present value factors to four decimal places) > t"e p!rc"ase price of t"e 6on+s on G!ne 1, )00@ is . . C. D .
P3,#7,%%) P3,#7,%%) P3,3#3,10# P3,#$,@%#
Solution: A is correct
P; of t"e principal 0.33@ ( ,000,000/ P; of t"e interest
P$,$#0,@00
NFJPIA Region XII - 8th Annual Annual Regional Convention Mock Board Exaination @.@$$ ( ,000,000 ( #5/
),1)7,1%) P5,467,992 . 4"e 4iger 4iger Corporation Corporation incl!+e+ incl!+e+ t"e following following in its !na+!ste+ !na+!ste+ trial 6alance as of Decem6er $1, )01): Inventory, 1)E$1E11 P!rc"ases
P1%,#30,000 1)7,@30,000
++itional information: •
4"e inventory at Decem6er $1, )01) was co!nte+ at a cost of
[email protected] million. 4"is incl!+es P300,000 of
•
slow moving inventory t"at is e(pecte+ to 6e sol+ for P$00,000. Sales incl!+e P@ million for goo+s sol+ in Decem6er )01) for cas" to eer Finance Company. 4"e 4"e cost
•
of t"ese goo+s was P million. eer Finance Company "as t"e option to reH!ire 4iger to rep!rc"ase t"ese goo+s wit"in one mont" of year>en+ at t"eir original selling price pl!s a facilitating fee of P)30,000. 4"e Companys acco!nting policy is to present cost of writing +own inventory to R; as as part of cost of sales.
4"e cost of sales for t"e year en+e+ Decem6er $1, )01) is P1$@,@00,000 . . P1$$,00 ,000,00 ,000 C. P1$),@0 ,@00,00 ,000 D P1$%.000.000 .
Solution: B is correct
Amount in thousands: thousands: Inventory, 6eginning ++: P!rc"ases =ess: Inventory, en+ing Cost of sales, !na+!ste+ ++: to a+!st to net realia6le val!e t"e items in en+ing inventory =ess: Item sol+ !n+er rep!rc"ase agreement Cost of sales, a+!ste+
P1%,#30 1)7,@30 @,300 1$@,@00 )00 ,000 P1,000
7. Inventory Inventory per per co!nt on on Decem6er Decem6er $1, )01) )01) as reporte+ reporte+ 6y 9S Company Company was was at P30,000. P30,000. 4"e amo!nt amo!nt +oes not incl!+e t"e following items: . erc erc"a "an+ n+is isee cost costin ing g P)7, P)7,30 300 0 rece receiv ive+ e+ on Gan!ary Gan!ary $, )01$ )01$,, an+ an+ p!rc p!rc"a "ase se invo invoic icee reco recor+ r+e+ e+ on Gan!ary 3, )01$. S"ipment was ma+e on Decem6er Decem6er )3, )01), terms FO +estination. +estination. . erc"a erc"an+i n+ise se costin costing g P)0,00 P)0,000 0 was p"ys p"ysica ically lly segr segrega egate+ te+ in in t"e ware ware"o! "o!se se an+ an+ was set set asi+e asi+e for s"ipment s"ipment to a c!stomer s"ipment s"ipment sc"e+!le sc"e+!le+ + on Gan!ary ), )01$/. 4"is 4"is will 6e invoice+ to t"e c!stomer 6y t"en at P)@,000. C. erc"an+i erc"an+ise se receive+ receive+ on Gan!ary Gan!ary 7, )01$, )01$, costing costing P17,000 P17,000 was was entere+ entere+ in in t"e p!rc"ases p!rc"ases o!rna o!rnall on Gan!ary @, )01$. Invoice s"ipment was was ma+e FO s"ipping point point on Decem6er $0, )01). 9"at is t"e a+!ste+ 6alance of inventories to 6e presente+ in t"e )01) statement of financial position P3%7 000
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination . . C. D .
P3@0,000 P37@,000 P3@7,300
Solution: A is correct
8na+!ste+ inventory 6alance Item a/ &oo+s receive+ Gan!ary )01$, !n+er FO Destination, t"!s item is correctly e(cl!+e+ Item 6/ &oo+s still in ware"o!se 6!t were not incl!+e+ in t"e co!nt Item c/ &oo+s receive+ Gan!ary )01$, !n+er FO s"ipping point. Items s"ippe+ Decem6er $0, )01) +!ste+ inventory 6alance
P30,000 > )0,000 17,000 P597,000
@. o"ol Company lease+ office premises to Gill Company for a 3>year term starting Gan!ary ), )01$. 8n+er t"e terms of t"e lease, rent for t"e first year is P)00,000 an+ rent for years ) t"ro!g" 3 is P$00,000 ann!ally. s an in+!cement to enter t"e lease, o"ol Company waives t"e first si( mont" payments. Gill Company li2ewise pai+ a P70,000 sec!rity +eposit of w"ic" @05 is ref!n+a6le at t"e en+ of t"e lease term. F!rt"ermore, contingent rent eH!al to )5 of sales in e(cess of P1),000,000 s"all 6e pai+ 6y Gill Company. o"ol Company inc!rre+ initial +irect cost of P#0,000 w"ile G= Company pai+ P$0,000 in costs in relation to t"e lease. In )01$, Gill Company reporte+ sales of P1$,000,000. Rental e(pense to 6e incl!+e+ in Gill Companys )01$ income statement is )@@,@00 . . )@,@00 C. $0),)00 D $13,000 .
Solution: A is correct
4otal rental payments for five years P)00,000E)/ J P$00,000 ( #/ Divi+e+ 6y total years nn!al rental e(pense fi(e+/ Contingent rent KP1$ < P1)/ ( )5L Direct cost inc!rre+ $0,000 E 3/ on>ref!n+a6le portion of sec!rity +eposit P70,000 ( )05/ E 3 4otal rental e(pense
P1,$00,000 3 years P)0,000 )0,000 ,000 ),@00 P2!!,!00
The following information applies to the next two questions:
=iste+ 6elow are fo!r inter6an2 cas" transfers, in+icate+ 6y t"e n!m6ers 1, ), $, an+ #, of a client for late Decem6er )010 an+ early Gan!ary )011: an2 cco!nt One an2 cco!nt 4wo
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination
%.
Dis6!rsing Date
Receiving Date
ont"EDay/
ont"EDay/
Per an2
Per oo2s
Per an2 Per oo2s
1.
1)E$1
1)E$0
1)E$1
1)E$0
).
1E)
1)E$0
1)E$1
1)E$1
$.
1E$
1)E$1
1E)1E)
#.
1E$
1)E$1
1E)1)E$1
ase+ on t"e sc"e+!le of inter6an2 transfers a6ove, w"ic" of t"e cas" transfers in+icates an error in cas" c!toff at Decem6er $1, )010a.
1
6.
)
c.
$
+.
#
nswer: C
10.
ase+ on t"e sc"e+!le of inter6an2 transfers a6ove, w"ic" of t"e cas" transfers wo!l+ appear as a +eposit in transit on t"e Decem6er $1, )010 6an2 reconciliationa.
1
6.
)
c.
$
+.
#
nswer: D Auditing "#eor$
1. 9"ic" of t"e following are t"e t"ree principal met"o+s in sample selection are specifically i+entifie+ in PS 3$0. Statistical sampling, attri6!te sampling an+ "ap"aar+ sampling . Ran+om n!m6er selection, systematic selection an+ "ap"aar+ selection C. SeH!ential sampling, +iscovery sampling an+ statistical sampling D. SeH!ential sampling, +iscovery sampling an+ ran+om n!m6er selection
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination nswer: B ( PS 3$0, Audit Sampling)
). 9"ic" of t"e following is an appropriate consi+eration in a!+itors selection of sample sie. 4"e a!+itor may select a voi+e+ or cancelle+ +oc!ment in a sample. If t"e +oc!ment "as 6een properly voi+e+, treat t"e item as +eviation. . If t"e a!+itor enco!nters missing +oc!ments an+ "e is !na6le to +etermine w"et"er control "as 6een properly performe+, replace t"e +oc!ment wit" anot"er sample item. C. 4"e a!+itor may select a voi+e+ or cancelle+ +oc!ment in a sample. If t"e +oc!ment "as 6een properly voi+e+, replace t"e +oc!ment wit" anot"er sample item D. If t"e a!+itor enco!nters missing +oc!ments an+ "e is !na6le to +etermine w"et"er control "as 6een properly performe+, treat t"e item as +eviation an+ replace t"e +oc!ment wit" anot"er sample item.
nswer: C ( PS 3$0, Audit Sampling) 4"e a!+itor may select a voi+e+ or cancelle+ +oc!ment in a sample. If t"e +oc!ment "as 6een properly voi+e+, t"e +oc!ment m!st 6e replace+ wit" anot"er sample item. If t"e a!+itor enco!nters missing +oc!ments an+ "e is !na6le to +etermine w"et"er control "as 6een properly performe+, t"e a!+itor m!st treat t"e item as +eviation. $. Fra!+!lent financial reporting involves intentional misstatements or omissions of amo!nt or +isclos!res in t"e financial statements to +eceive financial statement !sers. 9"ic" of t"e following acts appropriately involves fra!+!lent financial statementsI. II. III. I;. ;. . . C. D.
anip!lations, falsification or alteration of recor+s or +oc!ments =apping of acco!nts receiva6le Recor+ing of transactions wit"o!t s!6stance Stealing entitys assets s!c" as cas", mar2eta6le sec!rities an+ inventory Intentional application of acco!nting policies I an+ II I, II , III an+ I; I, III an+ ; ll of t"e a6ove
nswer: C PS )#0, Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements / Fra!+!lent financial reporting involves intentional misstatements or omissions of amo!nt or +isclos!res in t"e financial statements to +eceive financial statement !sers. 4"is may involve: I. anip!lations, falsification or alteration of recor+s or +oc!ments. II. isrepresentation in or intentional omission of t"e effects of transactions from recor+s or +oc!ments. III. Recor+ing of transactions wit"o!t s!6stance an+ I;. Intentional application of acco!nting policies
#. 9"ic" of t"e following is not tr!e wit" reference to t"e Co+e of Professional 't"ics for CPs. cting as a+vocate of an a!+it client in resol!tion of a +isp!te or litigation t"at involves amo!nts material to t"e financial statements of t"e a!+it client impairs CPs in+epen+ence. . firm or networ2 firm s"o!l+ not provi+e acco!nting an+ 6oo22eeping services for an a!+it client t"at is not a liste+ entity.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination C. Fees are not to 6e regar+e+ as contingent if t"ese are fi(e+ 6y a co!rt D. professional acco!ntant in p!6lic practice may enter into an arrangement for t"e p!rc"ase of t"e w"ole or part of an acco!nting practice reH!iring payments to in+ivi+!als formerly engage+ in t"e practice. nswer: B Co+e of Professional 't"ics for CPs/ ccor+ing to Co+e of Professional 't"ics for CPs, a firm or networ2 firm s"o!l+ not provi+e acco!nting an+ 6oo22eeping services for an a!+it client t"at is % listed entit$. 4"e provision of s!c" services may impair CPs in+epen+ence, or at least give t"e appearance of impairing in+epen+ence. 3. 9"ic" of t"e following acts is pro"i6ite+ 6y t"e Co+e of Professional 't"ics for CPs. 4"e !se of a firm name w"ic" incl!+es t"e name of a retire+ partner . n anno!ncement in a newspaper of t"e opening of a p!6lic acco!nting office C. 'ngaging in civic activities +!ring 6!siness "o!rs D. ccepting an engagement or employment w"ic" one cannot reasona6le e(pect to compete or +isc"arge wit" professional competence
nswer: D Co+e of Professional 't"ics for CPs/ . 9"en an in+epen+ent a!+itors e(amination of financial statements +iscloses special circ!mstances t"at ma2e t"e a!+itor s!spects t"at fra!+ may e(ist, t"e a!+itors initial co!rse of action s"o!l+ 6e to . Recommen+ t"at t"e client p!rs!e t"e s!specte+ fra!+ to a concl!sion t"at is agreea6le to t"e a!+itor . '(ten+ normal a!+it proce+!res in an attempt to +etect t"e f!ll e(tent of t"e s!specte+ fra!+ C. Reac" an !n+erstan+ing wit" t"e proper client representative as to w"et"er t"e a!+itor or t"e client is to ma2e t"e investigation necessary to +etermine if a fra!+ "as in fact occ!rre+ D. Determine w"et"er t"e fra!+, if in fact it +oes e(ist, mig"t 6e of s!c" a magnit!+e as to affect t"e a!+itors report on t"e financial statements nswer: D PS )30, Consideration of Las and Regulations in an Audit of Financial Statements , Section 3@/ 7. 9"en an in+epen+ent a!+itor +eci+es t"at t"e wor2 performe+ 6y internal a!+itors may "ave a 6earing on t"e nat!re, timing an+ e(tent of planne+ a!+it proce+!res, t"e in+epen+ent a!+itor s"o!l+ eval!ate t"e o6ectivity of t"e internal a!+itors. Relative to o6ectivity, t"e in+epen+ent a!+itor s"o!l+ . . C. D.
Consi+er t"e organiational level to w"ic" internal a!+itors report Review t"e H!ality control program in effect for t"e internal a!+it staff '(amine t"e H!ality of t"e internal a!+it reports Consi+er t"e H!alifications of t"e internal a!+it staff
nswer: A ( PS 10, !sing the "or# of $nternal Auditors) @. D!ring an assessment of t"e ris2 associate+ wit" sales contracts an+ relate+ commissions, w"ic" of t"e following factors wo!l+ most li2ely res!lt in an e(pansion of t"e engagement scope. n increase in pro+!ct sales, along wit" an increase in commissions . n increase in sales ret!rns, along wit" an increase in commissions
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination C. +ecrease in sales commissions, along wit" a +ecrease in pro+!ct sales D. +ecrease in sales ret!rns, along wit" an increase in pro+!ct sales nswer: B (%leim’s Certified $nternal Auditor Revieer) 4ren+s +escri6e+ in , C an+ D are compati6le w"ile tren+ in are incompati6le an+ may in+icate inflate+ sales fig!res. %. 9"ic" of t"e following e(planations s!ggests t"e least amo!nt of relative ris2 stemming from a fail!re to compare a p!rc"ase or+er to an approve+ price list. temporary employee processe+ t"e p!rc"ase or+er. . 4"e comparison is not reH!ire+ 6y company policy. C. 4"e ven+or is one !se+ often 6y t"e company. D. 4"e +irector of t"e p!rc"asing +epartment approve+ t"e p!rc"ase or+er. nswer: A (Sayer’s Certified $nternal Auditor Revieer) MN is correct. 4"e relative ris2 of loss to t"e company wo!l+ 6e lower if a temporary employee were responsi6le for t"e error. 4"is s!ggests an isolate+ inci+ent, as t"e employee will not 6e a6le to repeat t"e error once "e or s"e "as left t"e p!rc"asing +epartment. *owever, t"e error s"o!l+ still 6e reporte+ to management. MN is incorrect. If employees are not reH!ire+ to cons!lt an approve+ price list, t"e company ris2s 6!ying at too great a price. MCN is incorrect. 'ven if t"e company reg!larly 6!ys from t"is ven+or, t"ere is no ass!rance t"at t"e price is reasona6le !nless t"e p!rc"ase or+er is compare+ to t"e approve+ price list. MDN is incorrect. 4"e +irector s"o!l+ "ave reH!ire+ t"e p!rc"ase or+er to 6e compare+ to t"e approve+ price list 6efore approving it. Ot"erwise, t"e p!rc"ase price may e(cee+ t"e approve+ price.
. . C. D.
10. 9"ic" of t"e following fra!+!lent entries is most li2ely to 6e ma+e to conceal t"e t"eft of an assetDe6it e(penses, an+ cre+it t"e asset De6it t"e asset, an+ cre+it anot"er asset acco!nt De6it reven!e, an+ cre+it t"e asset De6it anot"er asset acco!nt, an+ cre+it t"e asset
nswer: A (Sayer’s Certified $nternal Auditor Revieer) MN is correct. ost fra!+ perpetrators wo!l+ attempt to conceal t"eir t"eft 6y c"arging it against an e(pense acco!nt. MN is incorrect. De6iting t"e stolen asset acco!nt wo!l+ 6e going in t"e wrong +irection to conceal an asset t"eft. MCN is incorrect. n entry +ecreasing reven!e wo!l+ 6e !n!s!al an+ wo!l+ stan+ o!t. MDN is incorrect. 4"is entry wo!l+ not permanently conceal t"e fra!+. It wo!l+ simply s"ift t"e !nreconcila6le 6alance to anot"er asset acco!nt. 11. 9"at comp!ter>assiste+ a!+it tec"niH!e wo!l+ an a!+itor !se to i+entify a fictitio!s or terminate+ employee. Parallel sim!lation of payroll calc!lations. . '(ception testing for payroll +e+!ctions. C. Recalc!lations of net pay. D. 4agging an+ tracing of payroll ta(>rate c"anges.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination
Solution: B
a/ Incorrect. In a parallel sim!lation, +ata t"at were processe+ 6y t"e engagement clients system are reprocesse+ t"ro!g" t"e a!+itors program to +etermine if t"e o!tp!t o6taine+ matc"es t"e o!tp!t generate+ 6y t"e clients system. 4"is tec"niH!e mig"t i+entify pro6lems wit" t"e clients processing 6!t wo!l+ not i+entify a fictitio!s or terminate+ employee. b& Correct' "#is t$(e o) com(uter*%ssisted %udit tec#ni+ue CAA"& (rogr%m c%n identi)$ em(lo$ees -#o #%.e no deductions' "#is is im(ort%nt bec%use )ictitious or termin%ted em(lo$ees -ill gener%ll$ not #%.e %n$ deductions' c/ Incorrect. C4 program can recalc!late amo!nts s!c" as gross pay, net pay, ta(es an+ ot"er +e+!ctions, an+ acc!m!late+ or !se+ leave times. 4"ese recalc!lations can "elp +etermine if t"e payroll program is operating correctly or if employee files "ave 6een altere+, 6!t wo!l+ not i+entify a fictitio!s or terminate+ employee. +/ Incorrect. In t"is type of C4 program, certain act!al transactions are Mtagge+,N an+ as t"ey procee+ t"ro!g" t"e system, a +ata file is create+ t"at traces t"e processing t"ro!g" t"e system an+ permits an a!+itor to s!6seH!ently review t"at processing. 4"is wo!l+ not, "owever, i+entify a fictitio!s or terminate+ employee. 1). c"ief a!+it e(ec!tive C'/ s!spects t"at several employees "ave !se+ +es2top comp!ters for personal gain. In con+!cting an investigation, t"e primary reason t"at t"e C' c"ose to engage a forensic information systems a!+itor rat"er t"an !sing t"e organiations information systems a!+itor is t"at a forensic information systems a!+itor wo!l+ possess: . nowle+ge of t"e comp!ting system t"at wo!l+ ena6le a more compre"ensive assessment of t"e comp!ter !se an+ a6!se. . nowle+ge of w"at constit!tes evi+ence accepta6le in a co!rt of law. C. S!perior analytical s2ills t"at wo!l+ facilitate t"e i+entification of comp!ter a6!se. D. S!perior +oc!mentation an+ organiation s2ills t"at wo!l+ facilitate in t"e presentation of fin+ings to senior management an+ t"e 6oar+.
Solution: B
a/ Incorrect. 4"e organiations information systems a!+itor wo!l+ pro6a6ly "ave more 2nowle+ge of t"e organiations comp!ting systems. b& Correct' "#e distinguis#ing c#%r%cteristic o) )orensic %uditing is t#e /no-ledge needed to testi)$ %s %n e(ert -itness in % court o) l%-' Alt#oug# % )orensic %uditor m%$ (ossess t#e ot#er %ttributes listed, t#e org%ni%tions in)orm%tion s$stems %uditor m%$ %lso (ossess t#ese s/ills or /no-ledge elements' c/ Incorrect. forensic a!+itor wo!l+ not necessarily "ave analytical or organiational s2ills t"at are s!perior to t"ose of t"e organiations a!+itor. +/ Incorrect. See answer McN. 1$. n a!+it committee is concerne+ t"at management is not a++ressing all internal a!+it o6servations an+ recommen+ations. 9"at s"o!l+ t"e a!+it committee +o to a++ress t"is sit!ation. ReH!ire managers to provi+e +etaile+ action plans wit" specific +ates for a++ressing a!+it o6servations an+ recommen+ations. . ReH!ire all managers to confirm w"en t"ey "ave ta2en action. C. ReH!ire t"e c"ief e(ec!tive officer to report w"y action "as not 6een ta2en. D. ReH!ire t"e c"ief a!+it e(ec!tive to esta6lis" proce+!res to monitor progress.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination Solution: D
a/ Incorrect. anagement are responsi6le for ens!ring action on all internal a!+it o6servations an+ recommen+ations, 6!t some actions may ta2e time to complete an+ it is not practical to e(pect t"at all will 6e resolve+ w"en an a!+it committee meets. 6/ Incorrect. See answer MaN. c/ Incorrect. See answer MaN. d& Correct' "#e c#ie) %udit eecuti.e is res(onsible )or est%blis#ing %((ro(ri%te (rocedures )or monitoring t#e (rogress b$ m%n%gement on %ll intern%l %udit obser.%tions %nd recommend%tions' "#is res(onsibilit$ s#ould be -ritten into its c#%rter b$ t#e %udit committee, %nd (rogress s#ould be re(orted %t e%c# %udit committee meeting' 1#. s part of a man!fact!ring companys environmental, "ealt", an+ safety '*S/ self>inspection program, inspections are con+!cte+ 6y a mem6er of t"e '*S staff an+ t"e operational manager for a given wor2 area or 6!il+ing. If a +eficiency cannot 6e imme+iately correcte+, t"e '*S staff mem6er enters it into a trac2ing +ata6ase t"at is accessi6le to all +epartments via a local area networ2. 4"e '*S manager !ses t"e +ata6ase to provi+e senior management wit" H!arterly activity reports regar+ing corrective action. D!ring review of t"e self>inspection program, an a!+itor notes t"at t"e operational manager enters t"e clos!re information an+ affirms t"at corrective action is complete. 9"at c"ange in t"e control system wo!l+ compensate for t"is potential conflict of interest. o a++itional control is nee+e+ 6eca!se t"e H!arterly report is reviewe+ 6y senior management, provi+ing a+eH!ate oversig"t in t"is sit!ation. . o a++itional control is nee+e+ 6eca!se t"ose implementing a corrective action are in t"e 6est position to eval!ate t"e a+eH!acy an+ completion of t"at action. C. fter clos!re is entere+ into t"e system, review 6y t"e '*S staff mem6er of t"e original inspection team s"o!l+ 6e reH!ire+ in or+er to verify clos!re. D. 4"e '*S +epartment secretary s"o!l+ 6e responsi6le for entering all information in t"e trac2ing system 6ase+ on memos from t"e operational manager.
Solution: C
a/ Incorrect. lt"o!g" senior management can !se t"e report to H!estion w"y certain corrective actions may 6e 6e"in+ sc"e+!le, t"ey "ave no way of 2nowing w"et"er t"e corrective actions s"own as complete were act!ally complete+. 6/ Incorrect. 9"ile t"e operational managers may in fact 6e t"e most 2nowle+gea6le a6o!t t"e corrective action, in+epen+ent verification is prefera6le. c& Correct' 3) t#ere is % ste( in t#e (rocess %t -#ic# someone inde(endent o) t#e %re% being ins(ected c%n e.%lu%te t#e %de+u%c$ %nd com(leteness o) correcti.e %ction, t#e (otenti%l )or closure )r%ud is minimied' +/ Incorrect. 4"ere is not"ing inappropriate a6o!t t"e environmental, "ealt", an+ safety staff entering t"e initial inspection res!lts. *aving t"e secretary enter clos!re +ata +oes not improve controls since t"ere is still no in+epen+ent review. It is also less efficient an+ timely t"an "aving t"e +ata entere+ +irectly in t"e fiel+. 13. n a!+it of an organiations claims +epartment +etermine+ t"at a large n!m6er of +!plicate payments "a+ 6een iss!e+ +!e to pro6lems in t"e claims processing system. D!ring t"e e(it conference, t"e vice presi+ent of t"e claims +epartment informe+ t"e a!+itors t"at attempts to recover t"e +!plicate payments wo!l+ 6e initiate+ imme+iately an+ t"at t"e claims processing system wo!l+ 6e en"ance+ wit"in si( mont"s to correct t"e pro6lems. ase+ on t"is response, t"e c"ief a!+it e(ec!tive s"o!l+: . +!st t"e scope of t"e ne(t reg!larly sc"e+!le+ a!+it of t"e claims +epartment to assess controls wit"in t"e claims processing system.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination . onitor t"e stat!s of corrective action an+ sc"e+!le a follow>!p engagement w"en appropriate. C. Sc"e+!le a follow>!p engagement wit"in si( mont"s to assess t"e stat!s of corrective action. D. Disc!ss t"e fin+ings wit" t"e a!+it committee an+ as2 t"e committee to +etermine t"e appropriate follow> !p action.
Solution: B
a/ Incorrect. eca!se t"e fin+ing is significant, t"e internal a!+it activity s"o!l+ not wait !ntil t"e ne(t reg!larly sc"e+!le+ a!+it to assess t"e stat!s of corrective action. b& Correct' "#e intern%l %udit %cti.it$ s#ould monitor t#e st%tus o) t#e correcti.e %ction' A )ollo-*u( eng%gement s#ould be sc#eduled -#en c#%nges to t#e cl%ims (rocessing s$stem #%.e been su))icientl$ com(leted to %llo- )or testing o) %de+u%c$ %nd e))ecti.eness' c/ Incorrect. lt"o!g" management in+icate+ t"at t"e corrections s"o!l+ 6e complete+ wit"in si( mont"s, t"is may not 6e t"e case. s a res!lt, t"e internal a!+it activity s"o!l+ monitor t"e stat!s of corrective action an+ sc"e+!le a follow>!p engagement w"en it is appropriate. +/ Incorrect. lt"o!g" t"e fin+ings s"o!l+ 6e +isc!sse+ wit" t"e a!+it committee 6eca!se of t"eir significance, t"e scope an+ timing of a follow>!p engagement s"o!l+ 6e +etermine+ 6y t"e c"ief a!+it e(ec!tive 6ase+ on availa6le information. 1. n organiation !ses electronic +ata interc"ange an+ on>line systems rat"er t"an paper>6ase+ +oc!ments for p!rc"ase or+ers, receiving reports, an+ invoices. 9"ic" of t"e following a!+it proce+!res wo!l+ an a!+itor !se to +etermine if invoices are pai+ only for goo+s receive+ an+ at approve+ prices. Select a statistical sample of maor ven+ors an+ trace t"e amo!nts pai+ to specific invoices. . 8se generalie+ a!+it software to select a sample of payments an+ matc" p!rc"ase or+ers, invoices, an+ receiving reports store+ on t"e comp!ter !sing a common reference. C. Select a monetary>!nit sample of acco!nts paya6le an+ confirm t"e amo!nts +irectly wit" t"e ven+ors. D. 8se generalie+ a!+it software to i+entify all receipts for a partic!lar +ay an+ trace t"e receiving reports to c"ec2s iss!e+.
Solution: B
. Incorrect. 4"is proce+!re only provi+es +ata on w"et"er payments agree wit" invoices. It +oes not provi+e +ata on w"et"er t"e invoice+ amo!nts are correct. B' Correct' "#is -ould #el( t#e %uditor determine t#%t %ll t#ree (ieces o) d%t% -ere most li/el$ m%tc#ed be)ore (%$ment' C. Incorrect. s wit" answer MaN, t"is only provi+es +ata on w"et"er payments agree wit" invoices. It +oes not provi+e +ata on w"et"er t"e goo+s were act!ally receive+. D. Incorrect. 4"is provi+es +ata only on one +ay. 9"ile it matc"es items receive+ wit" t"ose pai+, it +oes not provi+e +ata on w"et"er t"e 6illings were correct. 17. sales +epartment "as 6een giving away e(pensive items in con!nction wit" new pro+!ct sales to stim!late +eman+. 4"e promotion seems s!ccessf!l, 6!t management 6elieves t"e cost may 6e too "ig" an+ "as as2e+ for a review 6y t"e internal a!+it activity. 9"ic" of t"e following proce+!res wo!l+ 6e t"e least !sef!l to +etermine t"e effectiveness of t"e promotion. Comparing pro+!ct sales +!ring t"e promotion perio+ wit" sales +!ring a similar non>promotion perio+. . Comparing t"e !nit cost of t"e pro+!cts sol+ 6efore an+ +!ring t"e promotion perio+. C. Performing an analysis of marginal reven!e an+ marginal cost for t"e promotion perio+, compare+ to t"e perio+ 6efore t"e promotion. D. Performing a review of t"e sales +epartments 6enc"mar2s !se+ to +etermine t"e s!ccess of a promotion.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination Solution: B
a/ Incorrect. 4"is comparison wo!l+ "elp "ig"lig"t t"e effectiveness of t"e promotion in increasing sales. b& Correct' "#ere is no indic%tion t#%t cost o) t#e (roducts sold #%s c#%nged' "#e c#%llenge is to %ddress t#e e))ecti.eness o) t#e (romotion' c/ Incorrect. 4"is is t"e 2ey analysis as it wo!l+ s"ow t"e e(tent of a++itional reven!e vers!s cost. +/ Incorrect. 4"is wo!l+ 6e "elpf!l 6eca!se t"e sales +epartment may "ave !sef!l information on new c!stomers an+ repeat p!rc"ases. 1@. 9"ic" of t"e following o6servations 6y an a!+itor is most li2ely to in+icate t"e e(istence of control wea2nesses over safeg!ar+ing of assetsI. II. III. I;.
a/ 6/ c/ +/
service +epartments location is not well s!ite+ to allow a+eH!ate service to ot"er !nits. 'mployees "ire+ for sensitive positions are not s!6ecte+ to 6ac2gro!n+ c"ec2s. anagers +o not "ave access to reports t"at profile overall performance in relation to ot"er 6enc"mar2e+ organiations. anagement "as not ta2en corrective action to resolve past engagement o6servations relate+ to inventory controls. I an+ II only. I an+ I; only. II an+ III only. II an+ I; only.
Solution: D 33 %nd 3 onl$&
I. 33' III. 3'
Incorrect. 4"is is a symptom of wea2 controls for ac"ieving organiational goals an+ o6ectives, 6!t not for safeg!ar+ing of assets. Correct' "#is is % s$m(tom o) -e%/ controls )or s%)egu%rding o) %ssets' Incorrect. 4"is is a symptom of wea2 controls for ac"ieving organiational goals an+ o6ectives, 6!t not for safeg!ar+ing of assets. Correct' %n%gements )%ilure to t%/e correcti.e %ction on (%st eng%gement obser.%tions, -#ic# rel%ted to s%)egu%rding o) %ssets, is % -e%/ness rel%ted to s%)egu%rding o) %ssets'
1%. 4"e !se of an analytical review to verify t"e correctness of vario!s operating e(penses wo!l+ not 6e a preferre+ approac" if: . n a!+itor notes strong in+icators of a specific fra!+ involving t"ese acco!nts. . Operations are relatively sta6le an+ "ave not c"ange+ m!c" over t"e past year. C. n a!+itor wo!l+ li2e to i+entify large, !n!s!al, or non>rec!rring transactions +!ring t"e year. D. Operating e(penses vary in relation to ot"er operating e(penses, 6!t not in relation to reven!e.
Solution: A %& Correct' 3) t#e %uditor %lre%d$ sus(ects )r%ud, % more directed %udit %((ro%c# -ould be %((ro(ri%te' 6/ Incorrect. Relatively sta6le operating +ata is a goo+ scenario for !sing analytical review. c/ Incorrect. nalytical review wo!l+ 6e !sef!l in i+entifying w"et"er large, non>rec!rring, or !n!s!al transactions occ!rre+.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination +/ Incorrect. nalytical review only nee+s to "ave acco!nts relate+ to ot"er acco!nts or ot"er in+epen+ent +ata. It +oes not reH!ire t"at t"ey 6e relate+ to reven!e. )0. s part of a preliminary s!rvey of t"e p!rc"asing f!nction, an a!+itor rea+ t"e +epartments policies an+ proce+!res man!al. 4"e a!+itor concl!+e+ t"at t"e man!al +escri6e+ t"e processing steps well an+ containe+ an appropriate internal control +esign. 4"e ne(t engagement o6ective was to +etermine t"e operating effectiveness of internal controls. 9"ic" proce+!re wo!l+ 6e most appropriate in meeting t"is o6ectivea/ 6/ c/ +/
Prepare a flowc"art. Prepare a system narrative. Perform a test of controls. Perform a s!6stantive test.
Solution: C
a/ Incorrect. Flowc"arts are most appropriate for st!+ying internal control +esign. 4"e a!+it o6ective is w"et"er t"e controls are in place an+ effective, w"ic" in+icates t"e nee+ for a test of controls. 6/ Incorrect. System narratives are most appropriate for st!+ying internal control +esign. 4"e a!+it o6ective is w"et"er t"e controls are in place an+ effective, w"ic" in+icates t"e nee+ for a test of controls. c& Correct' "ests o) controls, %lso /no-n %s com(li%nce tests, #el( %n %uditor determine -#et#er controls %re being )ollo-ed %nd %re e))ecti.e' or inst%nce, % (olic$ m%$ re+uire t#%t %ll l%rge tr%ns%ctions be %((ro.ed b$ % m%n%ger' As % test o) controls, t#e %uditor m%$ s%m(le l%rge tr%ns%ctions %nd re.ie- -#et#er m%n%ger %((ro.%l -%s obt%ined %nd -#et#er t#e (ro(osed tr%ns%ction meets %ll t#e criteri% t#%t t#e m%n%ger -%s su((osed to .eri)$' d& Incorrect. S!6stantive tests are tests to +etermine w"et"er an o6ective "as 6een ac"ieve+ an+ +o not necessarily test internal controls.
%n%gement Accounting Ser.ices
1. Pro+!ct cost !n+er a6sorption costing is c"aracteristically: . . C. D .
*ig"er t"an !n+er varia6le costing. =ower t"an !n+er varia6le costing. 'H!al to varia6le costing. *ig"er sometimes an+ lower sometimes t"an varia6le costing.
Solution: A is correct'
). FGPI Co. is consi+ering t"e following investment proposals. Ran2 t"e following proposals !sing t"e profita6ility in+e( in or+er of t"e most profita6le proposal +own to t"e least profita6le proposal/.
Investment reH!ire+ Present val!e of f!t!re net cas" flows .
D, , C,
A 10,000 1%),000
B )00,000 $00,000
C 1)0,000 1@,000
D 130,000 )#0,000
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination . C. D .
, D, C, , D, , C , C, , D
Solution: A is correct'
Profita6ility in+e( is an investment appraisal tec"niH!e calc!late+ 6 y +ivi+ing t"e present val!e of f!t!re cas" flows of a proect 6y t"e initial investment reH!ire+ for t"e proect. Profita6ility in+e( of t"e a6ove proposals are as follows: Decision R!le. ccept a proect if t"e profita6ility in+e( is greater t"an 1, stay in+ifferent if t"e profita6ility in+e( is ero an+ +ont accept a proect if t"e profita6ility in+e( is 6elow 1. 4"e ran2ing of t"e proposals in terms of preference !sing t"e profita6ility in+e( is +etermine+ as follows.
Present val!e of f!t!re net cas" flows Investment reH!ire+ Profita6ility in+e(
A 1%),000 10,000 1.)
B $00,000 )00,000 1.3
C 1@,000 1)0,000 1.#
D )#0,000 130,000 1.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination $. 4"e stoc2 of &;S pays +ivi+en+s t"at are e(pecte+ to grow at a stea+y rate of $.)5 per year. Investors e(pect a rate of ret!rn of 11.35 from &;S stoc2. If t"e sprea+ 6etween t"is reH!ire+ rate of ret!rn an+ t"e +ivi+en+ growt" rate were to increase 6y 30 6asis points, t"e percentage c"ange in t"e stoc2 price wo!l+ 6e: . . C. D .
J$.%#5 >#.7$5 >3.@5 J#.))5
Solution: C is correct'
4"e +ivi+en+ +isco!nt mo+el DD/ is a met"o+ of val!ing a company 6ase+ on t"e t"eory t"at a stoc2 is wort" t"e +isco!nte+ s!m of all of its f!t!re +ivi+en+ payments. In ot"er wor+s, it is !se+ to val!e stoc2s 6ase+ on t"e net present val!e of t"e f!t!re +ivi+en+s. 8sing Divi+en+ Disco!nt o+el given Po Q D1E2 < g/. 9"en 2 < g Q 11.35 > $.)5 Q @.$5, t"e price is given 6y Po Q D1E0.0@$. 9"en t"e sprea+ increases 6y 30 6asis points an+ all else stays constant, t"e price 6ecomes P1Q D1E0.0@$ J 0.003/ Q D1E0.0@@. 4"e percentage c"ange in t"e price eH!als P1 < Po/EPo Q 1E0.0@@ < 1E0.0@$/0.0@$ Q 0.0@$E0.0@@ < 1 Q >3.@5. 4"!s, t"e stoc2 price falls 6y 3.@5 w"en t"e sprea+ 6etween 2 an+ g increases 6y 30 6asis points, all else eH!al. #. 9"ic" of t"e following statements is tr!e . .
firm wit" financial leverage "as a larger eH!ity m!ltiplier t"an an ot"erwise i+entical firm wit" no +e6t in its capital str!ct!re. 4"e !se of +e6t in a companys capital str!ct!re res!lts in ta( 6enefits to t"e investors w"o p!rc"ase t"e companys 6on+s. C. ll else eH!al, a firm wit" a "ig"er +e6t ratio will "ave a lower 6asic earning power ratio. D ll of t"e statements a6ove are correct. . Solution: A is correct'
firm wit" financial leverage means t"e firm !ses +e6t for financing. 'H!ity m!ltiplier is a meas!re of financial leverage, calc!late+ as: "ot%l Assets 8 "ot%l Stoc/#olders +uit$. =i2e all +e6t management ratios, t"e eH!ity m!ltiplier is a way of e(amining "ow a company !ses +e6t to finance its assets. It is also 2nown as t"e financial leverage ratio or leverage ratio. "ig"er eH!ity m!ltiplier in+icates "ig"er financial leverage, w"ic" means t"e company is relying more on +e6t to finance its assets. 4"e !se of +e6t provi+es ta( 6enefits to t"e corporations t"at iss!e +e6t, not to t"e investors w"o p!rc"ase +e6t in t"e form of 6on+s/. 4"e 6asic earning power ratio is calc!late+ as t"e r%tio o) %rnings Be)ore 3nterest %nd "%es to "ot%l Assets . 4"e "ig"er t"e 'P ratio, t"e more effective a company is at generating income from its assets. 'P is !sef!l for comparing firms wit" +ifferent ta( sit!ations an+ +ifferent +egrees of financial leverage. 4"e 6asic earning power ratio wo!l+ 6e t"e same if t"e only t"ing t"at +iffere+ 6etween t"e firms were t"eir +e6t ratios. C"oice is correct. Ot"er c"oices are false.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination 3. 4"e iss!ance of serial 6on+s in e(c"ange for an office 6!il+ing, wit" t"e first installment of t"e 6on+s +!e late t"is year: . . C. D .
Decreases net wor2ing capital Decreases t"e c!rrent ratio Decreases t"e H!ic2 ratio ffects all of t"e answers as in+icate+
Solution: D is correct
D is correct 6eca!se t"e first installment is a c!rrent lia6ility w"ic" affects t"e H!ic2 ratio, t"e c!rrent ratio, an+ wor2ing capital. . 4"e internal rate of ret!rn is t"e . . C. D .
Rate of interest t"at eH!ates t"e present val!e of cas" o!tflows an+ t"e present val!e of cas" inflows inim!m accepta6le rate of ret!rn for a propose+ investment Ris2>a+!ste+ rate of ret!rn ReH!ire+ rate of ret!rn
Solution: A is correct'
7. n analyst "as o6taine+ t"e following information regar+ing two companies, Company an+ Company B: − − − − − −
Company an+ Company B "ave t"e same total assets. Company "as a "ig"er interest e(pense t"an Company B. Company "as a lower operating income 'I4/ t"an Company B. Company an+ Company B "ave t"e same ret!rn on eH!ity RO'/. Company an+ Company B "ave t"e same total assets t!rnover 44O/. Company an+ Company B "ave t"e same ta( rate.
ase+ on t"e a6ove information, w"ic" of t"e following statements is tr!e . . C. D .
Company "as a "ig"er times interest earne+ ratio. Company an+ Company B "as t"e same +e6t ratio. Company "as a "ig"er ret!rn on assets. Company "as a lower profit margin.
Solution: D is correct'
4imes interest earne+ also calle+ interest coverage ratio/ is t"e ratio of earnings 6efore interest an+ ta( 'I4/ of a 6!siness to its interest e(pense +!ring a given perio+. It is a solvency ratio meas!ring t"e a6ility of a 6!siness to pay off its +e6ts.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination "as a lower net income consi+ering it "as a lower 'I4 an+ "ig"er interest t"an B, 6!t t"e same ta( rate as B. Sales for eac" company are t"e same 6eca!se t"ey "ave t"e same total assets an+ t"e same total assets t!rnover ratio 44O Q SalesE4/. 4"erefore, since "as a lower net income an+ same sales as B, it follows t"at it "as a lower profit margin et Income ESales/. @. 9"ic" of t"e following statements relating to 6rea2even point analysis is correctStatement 1 Statement ) Statement $ Statement #
. . C. D . '.
rea2even point is not a goo+ planning tool since t"e goal of 6!siness is to ma2e a profit. Foc!sing on target net income rat"er t"an operating income will increase t"e 6rea2even point. Companies wit" a greater proportion of fi(e+ costs "ave a greater ris2 of loss t"an companies wit" a greater proportion of varia6le costs. rea2even point is t"e level of sales at w"ic" profit is ero.
False, False, 4r!e, 4r!e False, 4r!e, 4r!e, 4r!e 4r!e, 4r!e, False, False 4r!e, False, False, False ll statements are tr!e.
Solution: A is correct'
Statement 1 is false > 6rea2even point is an important planning tool t"at "elps managers +etermine vol!me of salesEpro+!ction nee+e+ to 6e profita6le. Statement ) is false > t"e same 6rea2even point will 6e calc!late+ w"et"er target operating income or target net income is !se+ in t"e C;P calc!lation. Statements $ an+ # are correct.
%. call option on a s"are of common stoc2 is more val!a6le w"en t"ere is lower . . C. D .
ar2et val!e of t"e !n+erlying s"are '(ercise price on t"e option 4ime to mat!rity on t"e option ;aria6ility of mar2et price on t"e !n+erlying s"are
Ans-er: B' ercise (rice on t#e o(tion'
Source: "iley C&A 'am Revie *usiness 'nvironment and Concepts by "hittington and +elaney (,--.) 10. 9"ic" of t"e following will ca!se a s"ift in t"e s!pply c!rve of a pro+!ct .
C"anges in cons!mer tastes
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination . C. D .
C"anges in t"e n!m6er of 6!yers in t"e mar2et C"anges in pro+!ction ta(es C"anges in t"e price of t"e pro+!ct
Ans-er: C' C#%nges in (roduction t%es
s"ift in t"e s!pply c!rve may res!lt from: 1/ c"anges in pro+!ction tec"nology )/ c"anges or e(pecte+ c"anges in reso!rce prices $/ c"anges in t"e prices of ot"er goo+s #/ c"anges in ta(es or s!6si+ies 3/ c"anges in t"e n!m6er of sellers in t"e mar2et / e(pectations a6o!t t"e f!t!re price of t"e pro+!ct . . C ' D .
Incorrect. C"anges in cons!mer tastes will res!lt in a s"ift in +eman+ c!rve. Incorrect. C"anges in t"e n!m6er of 6!yers in t"e mar2et will res!lt in a s"ift in +eman+ c!rve. Correct' C#%nges in (roduction t%es -ill %lter t#e su((l$ cur.e' Incorrect. C"ange in t"e price of t"e pro+!ct involves movement along t"e e(isting s!pply c!rve, not a s"ift in t"e s!pply c!rve.
Source: "iley C&A 'am Revie *usiness 'nvironment and Concepts by "hittington and +elaney (,--.)
11' Operational 6!+gets are !se+ 6y a retail company for planning an+ controlling its 6!siness activities. Data regar+ing t"e companys mont"ly sales for t"e last mont"s of t"e year an+ its proecte+ collection patterns are s"own 6elow.
4"e cost of merc"an+ise averages #05 of its selling price. 4"e companys policy is to maintain an inventory eH!al to )35 of t"e ne(t mont"s forecaste+ sales. 4"e inventory 6alance at cost is P"p@0,000 as of G!ne $0. Forecasted sales G!ly !g!st Septem6er Octo6er ovem6er Decem6er
P"p773,000 730,000 @)3,000 @00,000 @30,000 %00,000
9"at is t"e 6!+gete+ cost of t"e companys p!rc"ase for t"e mont" of !g!st. . C. D.
P"p$07,300 P"p$00,000 P"p#30,300 P"p1#),300
Ans-er: A' P#(07,500
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination Sales P"p730,000 T #05/ 'n+ing inventory P"p@)3,000 T #05 T )35/ eginning inventory P"p730,000 T #05 T )35/ Purc#%ses
P"p$00,000 @),300 73,000/ P#(07,500
Source: "iley C&A 'am Revie *usiness 'nvironment and Concepts by "hittington and +elaney (,--.) 1). 4"e management of C Corporation "as +eci+e+ to implement a transfer pricing system. Cs IS +epartment is c!rrently negotiating a transfer price for its services wit" t"e fo!r pro+!cing +ivisions of t"e company as well as t"e mar2eting +epartment. C"arges will 6e assesse+ 6ase+ on n!m6er of reports ass!me t"at all reports reH!ire t"e same amo!nt of time an+ reso!rces to pro+!ce/. 4"e cost to operate t"e IS +epartment at its f!ll capacity of 1,000 reports per year is 6!+gete+ at P"p#30,000. 4"e !ser s!6!nits e(pect to reH!est )30 reports eac" t"is year. 4"e cost of temporary la6or an+ a++itional facilities !se+ to pro+!ce reports 6eyon+ capacity is 6!+gete+ at P"p#@0.00 per report. C co!l+ p!rc"ase t"e same services from an e(ternal Information Services firm for P"p700,000. 9"at amo!nts s"o!l+ 6e !se+ as t"e floor an+ t"e ceiling in +etermining t"e negotiate+ transfer priceFloor Ceiling . P"p#30 P"p300 . P"p#3 P"p30 C. P"p3#0 P"p300 D. P"p300 P"p3#0 Ans-er: B' loor P#(456'00 Ceiling P#(560'00
egotiate+ transfer prices s"o!l+ fall wit"in a range limite+ 6y a ceiling an+ a floor. 4"e ceiling is t"e lowest mar2et price t"at co!l+ 6e o6taine+ from an e(ternal s!pplier, an+ t"e floor eH!als t"e o!tlay costs pl!s opport!nity cost of t"e transferring +ivision. Since Cs IS +epartment +oes not "ave t"e option to sell services to e(ternal c!stomers, its opport!nity cost is P"p0. Since all costs of service +epartments m!st 6e covere+ 6y t"e reven!e>pro+!cing +epartments, t"e IS +epartments o!tlay cost eH!als its total costs. 4"e +epartments f!ll capacity level is 1,000 reports per year. *owever, t"e !ser +epartments will 6e reH!esting 1,)30 reports 3 !ser s!6!nits T )30 reports eac"/. 4"!s, t"e IS +epartment will inc!r costs of P"p1)0,000 KP"p#@0 T 1,)30 < 1,000/L for t"e )30 reports a6ove capacity, in a++ition to t"e P"p#30,000 6!+gete+ costs for f!ll capacity. 4"e total cost of P"p370,000 P"p#30,000 J P"p1)0,000/ is !se+ to calc!late t"e floor. 4"e ceiling is 6ase+ on t"e P"p700,000 t"at wo!l+ 6e inc!rre+ to p!rc"ase IS services e(ternally. Since t"e IS +epartment will 6e pro+!cing 1,)30 reports, t"e floor is P"p#3.00 P"p370,000 1,)30/, an+ t"e ceiling is P"p30.00 P"p700,000 1,)30/. t f!ll capacity, any +ifferential costs of a++itional pro+!ction are a++e+ to t"e floor. P"p#@0.00 represents only t"e +ifferential cost of pro+!cing eac" report a6ove f!ll capacity, not cost per report for total pro+!ction. !+gete+ costs are 6ase+ on pro+!ction of 1,)30 reports, not 1,000. Source: "iley C&A 'am Revie *usiness 'nvironment and Concepts by "hittington and +elaney (,--.) 1$. C Company "as a single pro+!ct calle+ G&*. 4"e company normally pro+!ces an+ sells 70,000 G&*s eac" year at a selling price of P"p#3.00 per !nit. 4"e companys !nit costs at t"is level of activity are given 6elow: Direct materials Direct la6or ;aria6le man!fact!ring over"ea+ Fi(e+ man!fact!ring over"ea+ ;aria6le selling e(penses Fi(e+ selling e(penses 4otal cost per !nit
P"p10.00 $.30 .@0 @.00 ).00 $.00 P"p$$.$0
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination
ss!me t"at C Company "as s!fficient capacity to pro+!ce 100,000 !nits of G&* eac" year wit"o!t any increase in fi(e+ man!fact!ring over"ea+ costs. 4"e company co!l+ increase its sales 6y $05 a6ove t"e present 70,000 !nits eac" year if it were willing to increase t"e fi(e+ selling e(penses 6y P"p100,000. *ow m!c" wo!l+ 6e t"e increase in income if t"e pro+!ction an+ sales are increase+ 6y $05. . C. D.
P"p$7,700 P"p$00,000 P"p#3,00 P"p$3,730
Ans-er: A' P#(76,700
Selling price ;aria6le e(penses Direct materials Direct la6or ;aria6le man!fact!ring over"ea+ ;aria6le selling e(penses 8nit contri6!tion margin
P"p#3.00 P"p10.00 $.30 .@0 ).00
)).$0 P"p)).70
++itional contri6!tion 70,000 !nits T $05 T P"p)).70/ =ess: ++itional fi(e+ selling costs ++itional income
P"p#7,700 100,000 P#(76,700
Source: Comprehensive Revie in /AS (,--0) by *obadilla 1#. Com6o !sic Company pro+!ces an+ sells sensitive precision instr!ments for in+!strial !se. Fo!r types of instr!ments are pro+!ce+ at Canl!6ang Plant. Data wit" respect to t"ese fo!r types of pro+!cts are given 6elow: Product ;ine
4ime reH!ire+ to ma2e s!c" !nit in min!tes/ Selling price per !nit ;aria6le cost per "o!r
1
2
4
)0 )# 10@
#0 $# #@
10 1 7)
0 #0 )0
4"e Company "as )#,000 pro+!ction "o!rs availa6le after meeting t"e reH!irements for t"e reg!lar mar2et. 4"e mar2et can a6sor6 all !nits of any pro+!ct line t"at is pro+!ce+ wit" one e(ception > only #@,000 !nits of Pro+!ct $ can 6e sol+. In a++ition, t"ere is a s"ortage of materials for Pro+!ct #. aterials are availa6le for t"e pro+!ction of a total of 1),000 !nits of Pro+!ct #. 9"at is t"e n!m6er of "o!rs availa6le for Pro+!ct ) to ma(imie profit w"ile o6serving all t"e restrictions ,000 "o!rs . . #,000 "o!rs
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination C. D .
$,000 "o!rs 0 "o!rs
Ans-er: B' 4,000 #ours'
4otal min!tes in an "o!r Divi+e+ 6y: in!tes to ma2e eac" !nit 8nits pro+!ce+ eac" "o!r !ltiplie+ 6y: 8nit selling price Sales per "o!r ;aria6le cost per "o!r Contri6!tion margin per "o!r
1 0 )0 $ )# 7) 10@ $/
Product ;ine 2 0 0 #0 10 1.3 $# 1 31 % #@ 7) $ )#
4 0 0 1 #0 #0 )0 )0
Pro+!ct ran2ing of pro+!ction an+ sales to ac"ieve t"e 6est pro+!ct com6ination an+ t"!s ma(imie profit: Pro+!ct 1 Pro+!ct ) Pro+!ct $ Pro+!ct #
will not 6e man!fact!re+ $r+ 1st )n+
llocation of )#,000 pro+!ction "o!rs: 1
Pro+!ct $ < #@,000 T 10E0/ Pro+!ct # Pro+!ct ) < Remain+er Pro+!ct 1 < one 4otal allocate+ "o!rs
Product ;ine 2 @,000
4
1),000 #,000 0
#,000
@,000
1),000
Source: Revieer in /AS by /orante 13. 9"ic" of t"e following statements regar+ing transfer pricing is false . .
9"en i+le capacity e(ists, t"ere is no opport!nity cost to pro+!cing interme+iate pro+!cts for anot"er +ivision. ar2et>6ase+ transfer prices s"o!l+ 6e re+!ce+ 6y any costs avoi+e+ 6y selling internally rat"er t"an e(ternally. C. o contri6!tion margin is generate+ 6y t"e transferring +ivision w"en varia6le cost>6ase+ transfer prices are !se+. D 4"e goal of transfer pricing is to provi+e segment managers wit" incentive to ma(imie t"e . profits of t"eir +ivisions. Solution: D is correct
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination 4"e goal of transfer pricing is to enco!rage managers to ma2e transfer +ecisions w"ic" ma(imie profits of t"e company as a w"ole. Some transfers may not 6e profita6le to a partic!lar +ivision, 6!t wo!l+ effect a cost savings to t"e company 6y avoi+ing costs of p!rc"asing e(ternally. For e(ample, w"en a +ivision is alrea+y operating at f!ll capacity an+ !ses varia6le cost transfer prices, a++itional pro+!ction for internal transfer wo!l+ res!lt in a loss for t"e transferring +ivision 6eca!se no contri6!tion margin is earne+ to cover t"e +ifferential fi(e+ costs inc!rre+. Conversely, internal pro+!ction may 6e c"eaper to t"e corporate entity t"an p!rc"asing t"e pro+!ct, in w"ic" case t"e +ivision s"o!l+ accept t"e or+er. *owever, t"e +ivision manager is li2ely to engage in s!6optimiation 6y reecting t"e or+er to en"ance t"e +ivisions performance, w"ile a+versely affecting overall company performance. Business ;%- %nd "%%tion
1. ars" offere+ to constr!ct t"e "o!se of ellow for P"p%00,000, giving t"e latter ten 10/ +ays wit"in w"ic" to accept or reect t"e offer. On t"e fift" +ay, 6efore ellow co!l+ ma2e !p "is min+, ars" wit"+rew "is offer. 9"ic" of t"e following is tr!e. 4"e wit"+rawal of ars"s offer will ca!se t"e offer to cease in law, "ence, t"ere co!l+ 6e no conc!rrence of t"e offer an+ t"e acceptanceU . In t"e a6sence of conc!rrence of offer an+ acceptance, t"ere can 6e no consentU C. 9it"o!t consent, t"ere is no perfecte+ contract for t"e constr!ction of t"e "o!se of ellow. D. ll of t"e a6ove. Ans-er: d& All o) t#e %bo.e'
rticle 1$1@ of t"e Civil Co+e < M4"ere is no contract !nless t"e following reH!isites conc!r: 1/ Consent of t"e contracting partiesU )/ O6ect certain w"ic" is t"e s!6ect matter of t"e contractU $/ Ca!se of t"e o6ligation w"ic" is esta6lis"e+. rticle 1$1% of t"e Civil Co+e < MConsent is manifeste+ 6y t"e meeting of t"e offer an+ t"e acceptance !pon t"e t"ing an+ t"e ca!se w"ic" are to constit!te t"e contract. 4"e offer m!st 6e certain an+ t"e acceptance a6sol!te. H!alifie+ acceptance constit!tes a co!nter offer. ((.N ). 9, , an+ B are partners. conveye+ "is s"are to ?. 4"ereafter, t"e partners"ip inc!rre+ lia6ilities for t"e contract entere+ into 6etween t"e partners"ip an+ prior to t"e sale of s s"are to ?. 9"ic" of t"e following statements is correct. ? cannot 6e "el+ lia6le to 6eca!se a partner a+mitte+ into a partners"ip s"all 6ecome lia6le for an o6ligation only from t"e time "e too2 part in t"e control of t"e 6!siness. . ? cannot 6e "el+ lia6le to 6eca!se as a partner, ? s"all 6e s!6ect to all t"e restrictions an+ lia6ilities of a partners"ip. C. ? can 6e "el+ lia6le pro>rata wit" t"e ot"er partners regar+less of t"e time t"e lia6ility was inc!rre+. D. ? can 6e "el+ lia6le to , 6!t "is lia6ility s"all 6e satisfie+ only o!t of partners"ip property, !nless t"ere is a stip!lation to t"e contrary. Ans-er: D < c%n be #eld li%ble to , but #is li%bilit$ s#%ll be s%tis)ied onl$ out o) (%rtners#i( (ro(ert$, unless t#ere is % sti(ul%tion to t#e contr%r$'
rticle 1@) of t"e Civil Co+e provi+es: M person a+mitte+ as a partner into an e(isting partners"ip is lia6le for all t"e o6ligations of t"e partners"ip arising 6efore "is a+mission as t"o!g" "e "a+ 6een a partner w"en s!c" o6ligations were inc!rre+, e(cept t"at "is lia6ility s"all 6e satisfie+ only o!t of partners"ip property, !nless t"ere is a stip!lation to t"e contrary.N $. C owns 135 of t"e s!6scri6e+ capital stoc2 of B? corporation w"ic" owns an office 6!il+ing. C owns a sec!rity an+ anitorial agency. C, a +irector of B? Corporation, engage+ t"e services of "is
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination own company to perform services to t"e office 6!il+ing. 9"ic" of t"e following con+itions is O4 reH!ire+ in or+er for t"e service contract 6etween C an+ B? to 6e vali+. 4"e service contract m!st 6e approve+ 6y t"e 6oar+ of +irectors of B? corporationU . Cs vote was not necessary to constit!te a H!or!m at t"e meeting of t"e 6oar+ of +irectorsU C. Cs vote was not necessary for t"e approval of t"e service contracts. D. 4"e service contract m!st 6e ratifie+ 6y all t"e stoc2"ol+ers of t"e corporation. Ans-er: D "#e ser.ice contr%ct must be r%ti)ied b$ %ll t#e stoc/#olders o) t#e cor(or%tion'
Section $) of t"e Corporation Co+e provi+es: M contract of t"e corporation wit" one or more of its +irectors or tr!stees or officers is voi+a6le, at t"e option of s!c" corporation, !nless all t"e following con+itions are present: 1. 4"at t"e presence of s!c" +irector of tr!stee in t"e 6oar+ meeting in w"ic" t"e contract was approve+ was not necessary to constit!te a H!or!m for s!c" meetingU ). 4"at t"e vote of s!c" +irector or tr!stee was not necessary for t"e approval of t"e contractU $. 4"at t"e contract is fair an+ reasona6le !n+er t"e circ!mstancesU an+ #. 4"at in t"e case of an officer, t"e contract "as 6een previo!sly a!t"orie+ 6y t"e 6oar+ of +irectors. 9"ere t"e first two con+itions set fort" in prece+ing paragrap" is a6sent, in case of a contract wit" a +irector or tr!stee, s!c" contract may 6e ratifie+ 6y t"e vote of t"e stoc2"ol+ers representing at least two>t"ir+s of t"e o!tstan+ing capital stoc2 or of at least two t"ir+s of t"e mem6ers in a meeting calle+ for t"e p!rpose: Provi+e+, 4"at f!ll +isclos!re of t"e a+verse interest of t"e +irectors or tr!stees involve+ is ma+e at s!c" meeting: Provi+e+, "owever, 4"at t"e contract is fair an+ reasona6le !n+er t"e circ!mstances.N #. In line wit" t"e 4r!st F!n+ Doctrine t"at generally ren+ers it !nlawf!l for t"e corporation to ret!rn assets to t"e stoc2"ol+ers representing capital, !n+er w"at con+itions may a stoc2 corporation acH!ire its own s"ares: . 4"ere e(ists in t"e corporate 6oo2s !nrestricte+ retaine+ earnings to cover t"e rep!rc"ase of s"aresU . 4"e rep!rc"ase of s"ares m!st 6e for a legitimate 6!siness p!rposeU C. ot" an+ . D. eit"er nor . Ans-er: C Bot# A %nd B'
Section #1 of t"e Corporation Co+e provi+es: M stoc2 corporation s"all "ave t"e power to p!rc"ase or acH!ire its own s"ares for a legitimate corporate p!rposes or p!rposes, incl!+ing 6!t not limite+ to t"e following cases: Provi+e+, 4"at t"e corporation "as !nrestricte+ retaine+ earnings in its 6oo2s to cover t"e s"ares to 6e p!rc"ase+ or acH!ire+: a. 4o eliminate fractional s"ares arising o!t of stoc2 +ivi+en+sU 6. 4o collect or compromise an in+e6te+ness to t"e corporation, arising o!t of !npai+ s!6scription, in a +elinH!ency sale, an+ to p!rc"ase +elinH!ent s"ares sol+ +!ring sai+ saleU an+ c. 4o pay +issenting or wit"+rawing stoc2"ol+ers entitle+ to payment for t"eir s"ares !n+er t"e provisions of t"is Co+e. 3. In a stoc2"ol+ers meeting, r. ean +issente+ from t"e corporate act converting preferre+ voting s"ares to non>voting s"ares. r. ean s!6mitte+ "is certificates of stoc2 for notation t"at "is s"ares are +issenting. 4"e ne(t +ay, r. ean transferre+ "is s"ares to s. Dora to w"om new certificates were iss!e+. 9"ic" of t"ese statements is correct. r. ean can e(ercise t"e rig"t of appraisal 6eca!se "e +issente+ from t"e corporate act. . r. ean can no longer e(ercise t"e rig"t of appraisal 6eca!se "e alrea+y transferre+ "is s"ares to s. Dora. C. s. Dora s"o!l+ e(ercise t"e rig"t of appraisal on 6e"alf of r. ean. D. one of t"e statements is correct.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination Ans-er: B' r' Be%n c%n no longer eercise t#e rig#t o) %((r%is%l bec%use #e %lre%d$ tr%ns)erred #is s#%res to s' Dor%'
Section @ of t"e Corporation Co+e provi+es: M9it"in ten 10/ +ays after +eman+ing payment for "is s"ares, a +issenting stoc2"ol+er s"all s!6mit t"e certificates of stoc2 representing "is s"ares to t"e corporation for notation t"ereon t"at s!c" s"ares are +issenting s"ares. *is fail!re to +o so s"all, at t"e option of t"e corporation, terminate "is rig"ts !n+er t"is 4itle. If s"ares represente+ 6y t"e certificates 6earing s!c" notation are transferre+, an+ t"e certificates conseH!ently cancelle+, t"e rig"ts of t"e transferor as a +issenting stoc2"ol+er !n+er t"is 4itle s"all cease an+ t"e transferee s"all "ave all t"e rig"ts of a reg!lar stoc2"ol+erU an+ all +ivi+en+ contri6!tions w"ic" wo!l+ "ave accr!e+ on s!c" s"ares s"all 6e pai+ to t"e transferee.N . C Corporation "as 10 mem6ers in t"e oar+ of Directors. D!ring t"e election of officers, one of its mem6ers got sic2, w"ile t"e ot"er two went a6roa+, t"!s, t"e t"ree of t"em faile+ to atten+ t"e meeting an+ cast t"eir vote. onet"eless, acH!ire+ fo!r votes for t"e position of Secretary. Is vali+ly electe+ as an officer. o. 4"e Co+e reH!ires t"e vote of maority of all t"e mem6ers of t"e oar+ of Directors. . Bes. 4"e Co+e reH!ires only t"e +ecision of at least a maority of +irectors present at t"e election. C. Bes. 4"e articles of incorporation or 6y>laws may provi+e for lesser maority in case of election of officers. D. o. 4"e articles of incorporation reH!ire t"e H!or!m. Ans-er: A' =o' "#e Code re+uires t#e .ote o) m%>orit$ o) %ll t#e members o) t#e Bo%rd o) Directors'
Section )3 of t"e Corporation Co+e: MImme+iately after t"eir election, t"e +irectors of a corporation m!st formally organie 6y t"e election of a presi+ent, w"o s"all 6e a +irector, a treas!rer w"o may or ma y not 6e a +irector, a secretary w"o s"all 6e a resi+ent an+ citien of t"e P"ilippines, an+ s!c" ot"er officers as may 6e provi+e+ for in t"e 6y>laws. ny two or more positions may 6e "el+ conc!rrently 6y t"e same person, e(cept t"at no one s"all act as presi+ent an+ secretary or as presi+ent an+ treas!rer at t"e same time. 4"e +irectors or tr!stees an+ officers to 6e electe+ s"all perform t"e +!ties enoine+ on t"em 6y law an+ 6y t"e 6y> laws of t"e corporation. 8nless t"e articles of incorporation or t"e 6y>laws provi+e for a greater maority, a maority of t"e n!m6er of +irectors or tr!stees as fi(e+ in t"e articles of incorporation s"all constit!te a H!or!m for t"e transaction of corporate 6!siness, an+ every +ecision of at least a maority of t"e +irectors or tr!stees present at a meeting at w"ic" t"ere is a H!or!m s"all 6e vali+ as a corporate act, e(cept for t"e election of officers w"ic" s"all reH!ire t"e vote of a maority of all t"e mem6ers of t"e 6oar+. Directors or tr!stees cannot atten+ or vote 6y pro(y at 6oar+ meetings.N 7. , , C, D, an+ ' entere+ into a contract of partners"ip to organie events s!c" as we++ings an+ 6irt"+ay cele6rations. an+ are t"e only limite+ partners. D!ring one of t"e parties t"at t"e partners"ip organie+, D totally forgot "er tas2 to t!rn on t"e lig"ts +!ring t"e entrance of t"e +e6!tant. s a res!lt, t"e +e6!tant slippe+ off in!ring "er an2le. 4"e victim s!es t"e partners"ip for +amages. C"oose t"e 6est answer. . an+ are not lia6le 6eca!se t"ey are limite+ partners. . 4"e partners"ip is lia6le for +amages to t"e same e(tent as D. C. Only t"e general partners are lia6le in eH!al proportion. D. Only D is lia6le. Ans-er: B' "#e (%rtners#i( is li%ble )or d%m%ges to t#e s%me etent %s D'
rticle 1@)) of t"e Civil Co+e provi+es: M9"ere, 6y any wrongf!l act or omission of any partner acting in t"e or+inary co!rse of t"e 6!siness of t"e partners"ip or wit" t"e a!t"ority of "is co>partners, loss or in!ry is ca!se+
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination to any person, not 6eing a partner in t"e partners"ip, or any penalty is inc!rre+, t"e partners"ip is lia6le t"erefor to t"e same e(tent as t"e partner so acting or omitting to act.N @. owes B P"p100,000 paya6le in one year, at 105 interest per ann!m. On mat!rity, pays B P"p30,000 w"ic" B ac2nowle+ge+ "aving receive+ wit"o!t mentioning t"e payment of interest. 9"ic" of t"e following is correct. Principal "as alrea+y 6een pai+. . Interest is waive+. C. Payment will 6e applie+ first to t"e interest. D. O6ligation is e(ting!is"e+. Ans-er: C' P%$ment -ill be %((lied )irst to t#e interest' Article 125 o) t#e Ci.il Code (ro.ides: ?3) t#e debt (roduces interest, (%$ment o) t#e (rinci(%l s#%ll not be deemed to #%.e been m%de until t#e interests #%.e been co.ered'@
%. C Corporation is a stoc2 corporation w"ose principal place of 6!siness is in V!eon City. If a reg!lar meeting of its stoc2"ol+ers s"all 6e "el+, one of t"e reH!irements is: . otice of meetings m!st 6e p!6lis"e+ in a newspaper of general circ!lation two wee2s 6efore t"e sc"e+!le+ meeting. . V!or!m m!st consist of all t"e stoc2"ol+ers. C. 9ritten notice of meetings s"all 6e sent at least two wee2s prior to t"e meeting, !nless a +ifferent perio+ is reH!ire+ 6y t"e 6y>laws. D. ll of t"e a6ove. Ans-er: C' ritten notice o) meetings s#%ll be sent %t le%st t-o -ee/s (rior to t#e meeting, unless % di))erent (eriod is re+uired b$ t#e b$*l%-s'
Section 30 of t"e Corporation Co+e provi+es: MReg!lar meetings of stoc2"ol+ers or mem6ers s"all 6e "el+ ann!ally on a +ate fi(e+ in t"e 6y>laws, or if not so fi(e+, on any +ate in pril of every year as +etermine+ 6y t"e 6oar+ of +irectors or tr!stees: Provi+e+, 4"at written notice of reg!lar meetings s"all 6e sent to all stoc2"ol+ers or mem6ers of recor+ at least two )/ wee2s prior to t"e meeting !nless a +ifferent perio+ is reH!ire+ 6y t"e 6y>laws. Special meetings of stoc2"ol+ers or mem6ers s"all 6e "el+ at any time +eeme+ necessary or as provi+e+ in t"e 6y> lawsU Provi+e+, "owever, 4"at at least one 1/ wee2 written notice s"all 6e sent to all stoc2"ol+ers or mem6ers, !nless ot"erwise provi+e+ in t"e 6 y>laws. ((.N 10. B? Corporations 6y>laws provi+e t"at , one of its +irectors, s"all receive 105 of t"e net income 6efore ta( of t"e corporation as "is yearly compensation. *owever, , t"e Corporations presi+ent, conten+s t"at s!c" provision +irectly violates t"e Co+e pro"i6iting t"e compensation of +irectors. re +irectors a6sol!tely not entitle+ to compensation. Bes. 4"e Co+e e(pressly provi+es t"at +irectors s"all not receive any compensation, e(cept for reasona6le per +iems. . o. Directors are entitle+ to compensation w"en a!t"orie+ 6y t"e 6y>laws or 6y vote of stoc2"ol+er representing at least maority of t"e o!tstan+ing capital stoc2, s!6ect to li mitations t"at t"e total yearly compensation m!st e(cee+ 105 of t"e net income 6efore income ta( of t"e compensation +!ring t"e prece+ing year. C. o. Directors are entitle+ w"en a!t"orie+ 6y t"e 6y>laws or 6y vote of stoc2"ol+ers representing at least maority of t"e o!tstan+ing capital stoc2, s!6ect to limitations t"at t"e total yearly compensation s"all not e(cee+ 105 of t"e net income 6efore ta( of t"e corporation +!ring t"e prece+ing year. D. Bes. Directors are not entitle+ to compensation.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination Ans-er: C' =o' Directors %re entitled -#en %ut#oried b$ t#e b$*l%-s or b$ .ote o) stoc/#olders re(resenting %t le%st m%>orit$ o) t#e outst%nding c%(it%l stoc/, sub>ect to limit%tions t#%t t#e tot%l $e%rl$ com(ens%tion s#%ll not eceed 10 o) t#e net income be)ore t% o) t#e cor(or%tion during t#e (receding $e%r'
Section $0 of t"e Corporation Co+e provi+es: MCompensation of +irectors. >> In t"e a6sence of any provision in t"e 6y>laws fi(ing t"eir compensation, t"e +irectors s"all not receive any compensation, as s!c" +irectors, e(cept for reasona6le per +iems: Provi+e+, "owever, 4"at any s!c" compensation ot"er t"an per +iems may 6e grante+ to +irectors 6y t"e vote of t"e stoc2"ol+ers representing at least a maority of t"e o!tstan+ing capital stoc2 at a reg!lar or special stoc2"ol+ers meeting. In no case s"all t"e total yearly compensation of +irectors, as s!c" +irectors, e(cee+ ten percent 105/ of t"e net income 6efore income ta( of t"e corporation +!ring t"e prece+ing year.N
11. 'mployee G, a resi+ent Filipino citien, is a teac"er in onsters 8niversity. *e earns a mont"ly salary of P)3,000. For t"e year )01), "e also receive+ a +iscretionary 6on!s amo!nting to P#0,000. *is wife, , gave 6irt" to t"eir fo!rt" c"il+. 4"e names of t"eir c"il+ren an+ t"e 6irt"+ays are as follows:
't"el =! '+mon + &race
$E11E1%% 1 E1#E1%% @ E1%E)00 %E13E)01 )
For t"e year en+e+ )01), "ow m!c" 6asic personal e(emption can 'mployee G claim. . C. D. '.
P130,000 P1)3,000 P100,000 P30,000 ?ero
Ans-er: D' P50,000
1). Co. C "a+ t"e following +ata in t"e mont" of Septem6er: Sales P!rc"ases of goo+s P!rc"ase of mac"ines ac"ine =ife
P1,%00,000 1,)0,000 1,##0,000 @ years
ss!ming t"at t"e sai+ transactions are properly s!6stantiate+ for ;4 p!rposes, comp!te t"e ;4 paya6le. ote: 4"e amo!nts are e(cl!sive of ;4. . P"p70,%)0 . P"p7,@00 C. P"p7$,%)0 D. P"p))3,1)0
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination Ans-er: C' P7,920
))@,000
O!tp!t ;4 P1,%00,000 ( 1)5/ Inp!t ;4 P!rc"ase of goo+s P1,)0,000 ( 1)5/ P!rc"ase of mac"ines P1,##0,000 ( 1)5E0 mont"s/ =et A" P%$%ble
131,)00 ),@@0
13#,0@0 7,920
1$. On G!ly $1, )01$, 'sperana receive+ a preliminary assessment notice from t"e IR +eman+ing t"at s"e pays P1@0,000.00 +eficiency income ta(es on "er )011 income. *ow many +ays from G!ly $1, )01$ s"o!l+ 'sperana respon+ to t"e notice. 1@0 +ays . $0 +ays C. 0 +ays D. 13 +ays Ans-er: D' 15 d%$s
1#. 4"e gross estate of s. =ay+a amo!nte+ to P3 million. 4"e act!al f!neral e(penses are as follows: o!rning apparel of t"e s!rviving spo!se o!rning apparel of marrie+ c"il+ren P!6lication c"arges for +eat" notices Interment an+Eor cremation fees an+ c"arges 4otal
P100,000 %0,000 70,000 30,000 $10,000
*ow m!c" is t"e total +e+!cti6le f!neral e(pense. P)30,000 . P)00,000 C. P)70,000 D. P1@0,000 Ans-er: B' P200,000
ct!al f!neral e(penses o!rning apparel of t"e s!rviving spo!se P!6lication c"arges for +eat" notices Interment an+Eor cremation fees an+ c"arges
100,000 70,000 30,000 ))0,000
35 of gross estate
)30,000
=imit
)00,000
13. &ianna Corporation is engage+ in t"e 6!siness of p!6lis"ing magaines as well as t"e merc"an+ising of office s!pplies. For CB )01), it "as t"e following reven!eEsales: Reven!e from magaines Sales from office s!pplies
3@7,#00 1%7,300
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination F!rt"er, &ianna inc!rre+ entertainment, am!sement an+ recreation e(penses 'R/ amo!nting to P@,$30 an+ )E$ of w"ic" was inc!rre+ for t"e p!6lis"ing of magaines. *ow m!c" 'R is +e+!cti6le for income ta( p!rposes. . C. D.
P@,37.$$ P@,$30.00 P,@1.30 P,33#.17
Ans-er: D' P6,554'17
Reven!e Reven!e from magaines Sales from office s!pplies
Actu%l A
A ;33"
)E $
3@7,#00
3,3 .7
3,@7#.0 0
1%7,300
1E $
),7@ $.$$ @,$3 0.00
%@7.3 0
Deductible A
15 of reven!e from magaines/ 0.35 of sales from office s!pplies/
3,3. 7
%@7.3 0 ,33#.1 7
"#eor$ o) Accounts
1. 4"is refers to ISs main ve"icle for cons!lting t"e p!6lic an+ sets o!t a specific proposal in t"e form of a propose+ IFRS or amen+ment to an IFRS/. . Final Stan+ar+s . D!e Process *an+6oo2 C. men+ments D. '(pos!re Draft Ans-er: D' (osure Dr%)t
D!e Process *an+6oo2 for t"e IS an+ IFRS Interpretations Committee Fe6r!ary )01$/ provi+es: n '(pos!re Draft is t"e ISs main ve"icle for cons!lting t"e p!6lic an+ t"erefore incl!+es an invitation to comment, setting o!t t"e iss!es t"at t"e IS "as i+entifie+ as 6eing of partic!lar interest. lt"o!g" it is normally incl!+e+ wit" t"e 6allot +raft, it is not necessary for t"e IS to 6allot t"e invitation to comment. Par. .$/ n '(pos!re Draft sets o!t a specific proposal in t"e form of a propose+ Stan+ar+ or amen+ment to a Stan+ar+/ an+ is t"erefore generally set o!t in t"e same way as, an+ "as all of t"e components of, a Stan+ar+. Par. .)/ ). 9"ic" of t"e following is not an in+icator of sit!ations t"at wo!l+ in+ivi+!ally or in com6ination lea+ to a lease 6eing classifie+ as a finance lease . . C.
4"e lease+ assets are of s!c" a specialie+ nat!re t"at only t"e lessee can !se t"em wit"o!t maor mo+ifications. &ains or losses from t"e fl!ct!ation in t"e fair val!e of t"e resi+!al accr!e to t"e lessor. 4"e lessee "as t"e a6ility to contin!e t"e lease for a secon+ary perio+ at a rent t"at is s!6stantially lower t"an mar2et rent.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination D .
If t"e lessee can cancel t"e lease, t"e lessors losses associate+ wit" t"e cancellation are 6orne 6y t"e lessee.
Ans-er: B' %ins or losses )rom t#e )luctu%tion in t#e )%ir .%lue o) t#e residu%l %ccrue to t#e lessor'
Paragrap"s 10>11 of PS 17, Leases state: "hether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract12 'amples of situations that individually or in combination ould normally lead to a lease being classified as a finance lease are: (a) the lease transfers onership of the asset to the lessee by the end of the lease term3 (b) the lessee has the option to purchase the asset at a price that is epected to be sufficiently loer than the fair value at the date the option becomes eercisable for it to be reasonably certain4 at the inception of the lease4 that the option ill be eercised3 (c) the lease term is for the ma5or part of the economic life of the asset even if title is not transferred3 (d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset3 and (e) the leased assets are of such a specialized nature that only the lessee can use them without major modifications. $ndicators of situations that individually or in combination could also lead to a lease being classified as a finance lease are: (a) if the lessee can cancel the lease, the lessors losses associated with the cancellation are !orne !y the lessee" (!) gains or losses from the fluctuation in the fair #alue of the residual accrue to the lessee (for example, in the form of a rent re!ate equaling most of the sales proceeds at the end of the lease)" and (c) the lessee has the a!ility to continue the lease for a secondary period at a rent that is su!stantially lower than mar$et rent. $. 9"ic" of t"e following statements/ isEare incorrectSt%tement 3: PS 17, Leases, permits initial +irect costs inc!rre+ 6y lessors in negotiating an operating lease to 6e c"arge+ as e(penses w"en inc!rre+. St%tement 33: It is man+atory to apply t"e finance lease acco!nting met"o+ology set o!t in PS 17 to investment properties "el+ !n+er operating leases.
one of t"e a6ove . . Statement I only C. Statement II only D Statements I an+ II . Ans-er: B' St%tement 3 onl$
&aragraph ., of &AS 20 provides: 6$nitial direct costs incurred by lessors in negotiating and arranging an operating lease shall be added to the carrying amount of the leased asset and recognized as an expense o#er the lease term on the same !asis as the lease income17 &aragraph $8. of &AS 20 provides:
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination 6Although &AS 9-4 $nvestment &roperty prescribes the measurement models that can be applied to investment properties held4 it reuires the finance lease accounting methodology set out in this %tandard to !e used for in#estment properties held under leases 17 &aragraph ,. of &AS 9- provides: 6;he initial cost of a property interest held under a lease and classified as an investment property shall !e as 4 i1e14 the asset shall be recogni
generating !nit. St%tement 33: 9"en t"e amo!nt estimate+ for an impairment loss is greater t"an t"e carrying amo!nt of t"e asset to w"ic" it relates, an entity s"all a!tomatically recognie a lia6ility. St%tement 333: If it is not possi6le to estimate t"e recovera6le amo!nt of an in+ivi+!al asset, t"e entity s"o!l+ +etermine t"e recovera6le amo!nt of t"e cas" generating !nit to w"ic" t"e asset 6elongs. St%tement 3: PS $ reH!ires an intangi6le asset wit" an in+efinite !sef!l life to 6e teste+ for impairment ann!ally 6y comparing its carrying amo!nt wit" its recovera6le amo!nt, irrespective of w"et"er t"ere is any in+ication t"at it may 6e impaire+. *owever, t"e most recent +etaile+ calc!lation of s!c" an assets recovera6le amo!nt ma+e in a prece+ing perio+ may 6e !se+ in t"e impairment test for t"at asset in t"e c!rrent perio+ as long as certain criteria provi+e+ 6y PS $ are met.
. . C. D .
Statements III an+ I; Statements II, III an+ I; Statements I an+ III Statements I, III an+ I;
Ans-er: A' St%tements 333 %nd 3
&ar1 = of &AS >=4 $mpairment of Assets4 provides: 6?alue in use is the present value of the future cash flos epected to be derived from an asset or cash@ generating unit17 &ar1 =, of &AS >=4 $mpairment of Assets4 provides: 6"hen the amount estimated for an impairment loss is greater than the carrying amount of the asset to hich it relates4 an entity shall recogni=4 $mpairment of Assets4 provides: 6Recoverable amount is determined for an individual asset4 unless the asset does not generate cash inflos that are largely independent of those from other assets or groups of assets1 $f this is the case4 recoverable amount is determined for the cash@generating unit to hich the asset belongs7 &ar1 ,9 of &AS >=4 $mpairment of Assets4 provides:
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination 6&aragraph 2- reuires an intangible asset ith an indefinite useful life to be tested for impairment annually by comparing its carrying amount ith its recoverable amount4 irrespective of hether there is any indication that it may be impaired1 Boever4 the most recent detailed calculation of such an assets recoverable amount made in a preceding period may be used in the impairment test for that asset in the current period4 provided all of the folloing criteria are met: (a) if the intangible asset does not generate cash inflos from continuing use that are largely independent of those from other assets or groups of assets and is therefore tested for impairment as part of the cash@ generating unit to hich it belongs4 the assets and liabilities ma#ing up that unit have not changed significantly since the most recent recoverable amount calculation3 (b) the most recent recoverable amount calculation resulted in an amount that eceeded the assets carrying amount by a substantial margin3 and (c) based on an analysis of events that have occurred and circumstances that have changed since the most recent recoverable amount calculation4 the li#elihood that a current recoverable amount determination ould be less than the assets carrying amount is remote17 3. 9"ic" of t"e following are consi+ere+ a+!sting events after t"e reporting perio+ in accor+ance wit" PS 10, 'vents after the Reporting &eriod I. II. III. I;.
;. . . C. D .
an2r!ptcy of a c!stomer t"at occ!rs after t"e reporting perio+ Decline in mar2et val!e of investments Declaration of +ivi+en+s to "ol+ers of eH!ity instr!ments after t"e reporting perio+ Determination after t"e reporting perio+ of t"e amo!nt of profit>s"aring or 6on!s payments, if t"e entity "a+ a present legal or constr!ctive o6ligation at t"e en+ of t"e reporting perio+ to ma2e s!c" payments as a res!lt of events 6efore t"at +ate 6normally large c"ange in asset prices or foreign e(c"ange rates
Statements I, I; an+ ; Statements I, II an+ I; Statements I an+ I; Statements I, II, I; an+ ;
Ans-er: C' St%tements 3 %nd 3
Paragrap" % of PS 10, 'vents after the Reporting &eriod provi+es t"e following e(amples of a+!sting events after t"e reporting perio+ as follows: a/ t"e settlement after t"e reporting perio+ of a co!rt case t"at confirms t"at t"e entity "a+ a present o6ligation at t"e en+ of t"e reporting perio+. 4"e entity a+!sts any previo!sly recognie+ provision relate+ to t"is co!rt case in accor+ance wit" PS $7, Provisions, Contingent =ia6ilities an+ Contingent ssets or recognies a new provision. 4"e entity +oes not merely +isclose a contingent lia6ility 6eca!se t"e settlement provi+es a++itional evi+ence t"at wo!l+ 6e consi+ere+ in accor+ance wit" paragrap" 1 of PS $7. 6/ t"e receipt of information after t"e reporting perio+ in+icating t"at an asset was impaire+ at t"e en+ of t"e reporting perio+, or t"at t"e amo!nt of a previo!sly recognie+ impairment loss for t"at asset nee+s to 6e a+!ste+. For e(ample: i/
t"e 6an2r!ptcy of a c!stomer t"at occ!rs after t"e reporting perio+ !s!ally confirms t"at a loss e(iste+ at t"e en+ of t"e reporting perio+ on a tra+e receiva6le an+ t"at t"e entity nee+s to a+!st t"e carrying amo!nt of t"e tra+e receiva6leU an+
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination ii/
t"e sale of inventories after t"e reporting perio+ may give evi+ence a6o!t t"eir net realia6le val!e at t"e en+ of t"e reporting perio+.
c/ t"e +etermination after t"e reporting perio+ of t"e cost of assets p!rc"ase+, or t"e procee+s from assets sol+, 6efore t"e en+ of t"e reporting perio+. +/ t"e +etermination after t"e reporting perio+ of t"e amo!nt of profit>s"aring or 6on!s payments, if t"e entity "a+ a present legal or constr!ctive o6ligation at t"e en+ of t"e reporting perio+ to ma2e s!c" payments as a res!lt of events 6efore t"at +ate see PS 1%, 'mployee enefits/. e/
t"e +iscovery of fra!+ or errors t"at s"ow t"at t"e financial statements are incorrect.
. 9"en +isclosing financial instr!ments, an entity s"all gro!p t"em into classes as follows: I. II. III . . . C. D
&ro!p t"e financial instr!ments into classes t"at are appropriate to t"e nat!re of t"e information +isclose+ an+ t"at ta2e into acco!nt t"e c"aracteristics of t"ose financial instr!ments. &ro!p t"e financial instr!ments accor+ing to t"e categories of financial instr!ments in PS $%, Financial $nstruments: Recognition and /easurement . Provi+e s!fficient information to allow reconciliation to t"e line items presente+ in t"e statement of financial position. I only. I an+ II. I an+ III I, II an+ III.
Ans-er C' 3 %nd 333 %re true:
.
Incorrect. lt"o!g" Statement I is correct s!c" t"at PFRS 7 paragrap" provi+es t"at an entity s"all gro!p financial instr!ments into classes t"at are appropriate to t"e nat!re of t"e information +isclose+ an+ t"at ta2e into acco!nt t"e c"aracteristics of t"ose financial instr!ments, t"e stan+ar+ also reH!ires t"at s!fficient information s"all 6e provi+e+ to permit reconciliation to t"e line items presente+ in t"e statement of financial position Statement III/. . Incorrect. lt"o!g" Statement I is correct s!c" t"at PFRS 7 paragrap" provi+es t"at an entity s"all gro!p financial instr!ments into classes t"at are appropriate to t"e nat!re of t"e information +isclose+ an+ t"at ta2e into acco!nt t"e c"aracteristics of t"ose financial instr!ments, gro!ping t"e financial instr!ments into categories Statement II/ is not consistent wit" t"e stan+ar+s reH!irement to gro!p financial instr!ments into classes. C Correct' 3 %nd 333 %re true' PS 7'6 (ro.ides t#%t %n entit$ s#%ll grou( )in%nci%l instruments ' into cl%sses t#%t %re %((ro(ri%te to t#e n%ture o) t#e in)orm%tion disclosed %nd t#%t t%/e into %ccount t#e c#%r%cteristics o) t#ose )in%nci%l instruments' Also, t#e st%nd%rd re+uires t#%t su))icient in)orm%tion s#%ll be (ro.ided to (ermit reconcili%tion to t#e line items (resented in t#e st%tement o) )in%nci%l (osition' D Incorrect. Statements I an+ III are consistent wit" t"e reH!irements in PFRS 7. a6o!t gro!ping financial instr!ments into classes. *owever, gro!ping t"e financial instr!ments into categories Statement II/ is not consistent wit" t"e stan+ar+s reH!irement to gro!p financial instr!ments into classes. 4"e correct answer is C.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination PFRS 7. provi+es w"en t"is PFRS reH!ires +isclos!res 6y class of financial instr!ment, an entity s"all gro!p financial instr!ments into classes t"at are appropriate to t"e nat!re of t"e information +isclose+ an+ t"at ta2e into acco!nt t"e c"aracteristics of t"ose financial instr!ments. n entity s"all provi+e s!fficient information to permit reconciliation to t"e line items presente+ in t"e statement of financial position. 7. 9"ic" of t"e following statements/ isEare tr!eStatement I:
Statement II:
Statement III:
. . C. D .
If an entitys interim financial report is in compliance wit" PS $#, $nterim Financial Reporting , t"at fact s"all 6e +isclose+. n interim financial report s"all not 6e +escri6e+ as complying wit" PFRSs !nless it complies wit" some or s!6stantially all of t"e reH!irements of PFRSs. If an entity p!6lis"es a con+ense+ set of financial statements in its interim financial report, t"e form an+ content of t"ose statements s"all always conform to t"e reH!irements of PS 1, &resentation of Financial Statements. Costs t"at are inc!rre+ !nevenly +!ring an entitys financial year s"all 6e anticipate+ or +eferre+ for interim reporting p!rposes if, an+ only if, it is also appropriate to anticipate or +efer t"at type of cost at t"e en+ of t"e financial year.
Statement III only. Statements I an+ II. Statements II an+ III Statements I, II an+ III.
Ans-er: A' St%tement 333 onl$'
PS $# provi+es: 6$f an entitys interim financial report is in compliance ith this Standard4 that fact shall be disclosed1 An interim financial report shall not be described as complying ith &FRSs unless it complies with all of the reuirements of &FRSs7 (&ar12D) 6$f an entity publishes a complete set of financial statements in its interim financial report4 the form and content of those statements shall conform to the reuirements of &AS 2 for a complete set of financial statements17 (&ar1 D) 6Costs that are incurred unevenly during an entitys financial year shall be anticipated or deferred for interim reporting purposes if4 and only if4 it is also appropriate to anticipate or defer that type of cost at the end of the financial year17 (&ar1 >D) @. 9"ic" of t"e following statements/ isEare incorrect in accor+ance wit" PS )@, $nvestment in Associates and Eoint ?enturesStatement I:
If an investment in an associate 6ecomes an investment in a oint vent!re, t"e entity contin!es to apply t"e eH!ity met"o+ an+ +oes not remeas!re t"e retaine+ interest.
Statement II:
9"en +ownstream transactions provi+e evi+ence of a re+!ction in t"e net realia6le val!e of t"e assets to 6e sol+ or contri6!te+, or of an i mpairment loss of t"ose assets, t"ose losses s"all 6e recognie+ to t"e e(tent of t"e investors interest in t"e associate.
.
ll of t"e a6ove.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination . Statement I only C. Statement II only D one of t"e a6ove. . Ans-er: C' St%tement 33 onl$
PS )@ states t"at: &aragraph ,9 @ 6$f an investment in an associate becomes an investment in a 5oint venture or an investment in a 5oint venture becomes an investment in an associate4 the entity continues to apply the euity method and does not remeasure the retained interest17 &aragraph ,D @ 6"hen donstream transactions provide evidence of a reduction in the net reali
Service cost in profit or loss et interest on t"e net +efine+ 6enefit lia6ility in profit or loss Remeas!rements of t"e net +efine+ 6enefit lia6ility asset/ in ot"er compre"ensive income Remeas!rements of t"e net +efine+ 6enefit lia6ility asset/ in profit or loss
Ans-er: D' eme%surements o) t#e net de)ined bene)it li%bilit$ %sset& in (ro)it or loss
Par. 1)0 of PS1%R states: 6An entity shall recogni@2,=) in profit or loss3 and (c) remeasurements of the net defined benefit liability (asset) (see paragraphs 2,0@2>-) in other comprehensive income17 10. 9"ic" of t"e following isEare an e(ample of a sit!ation in w"ic" offsetting is inappropriateSt%tement 3: Financial assets an+ financial lia6ilities t"at arise from financial instr!ments "aving t"e same primary ris2 e(pos!re e.g., assets an+ lia6ilities wit"in a portfolio of forwar+ contracts or ot"er +erivative instr!ments/ 6!t involve +ifferent co!nterparties. St%tement 33: Financial or ot"er assets ple+ge+ as collateral for non>reco!rse financial lia6ilities St%tement 333: O6ligations inc!rre+ as a res!lt of events giving rise to losses are e(pecte+ to 6e recovere+ from a t"ir+ party 6y virt!e of a claim ma+e !n+er an ins!rance contract. St%tement 3: 4"e entity c!rrently "as a legally enforcea6le rig"t to set>off t"e recognie+ amo!nts an+ inten+s eit"er to settle on a net 6asis, or to realie t"e asset an+ settle t"e lia6ility sim!ltaneo!sly.
Statement I only
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination . . C. D .
Statements I an+ II only Statements I, II an+ II I only Statements I, II, III an+ I;
Ans-er: C' St%tements 3, 33 %nd 333 onl$
Paragrap" #% of PS $), Financial $nstruments: &resentation, states t"at t"e con+itions set o!t in paragrap" #) of PS $) are generally not satisfie+ an+ offsetting is !s!ally inappropriate w"en: a/ several +ifferent financial instr!ments are !se+ to em!late t"e feat!res of a single financial instr!ment a synt"etic instr!ment/U 6/ financial assets an+ financial lia6ilities arise from financial instr!ments "aving t"e same primary ris2 e(pos!re for e(ample, assets an+ lia6ilities wit"in a portfolio of forwar+ contracts or ot"er +erivative instr!ments/ 6!t involve +ifferent co!nterpartiesU c/ financial or ot"er assets are ple+ge+ as collateral for non>reco!rse financial lia6ilitiesU +/ financial assets are set asi+e in tr!st 6y a +e6tor for t"e p!rpose of +isc"arging an o6ligation wit"o!t t"ose assets "aving 6een accepte+ 6y t"e cre+itor in settlement of t"e o6ligation for e(ample, a sin2ing f!n+ arrangement/U or e/ o6ligations inc!rre+ as a res!lt of events giving rise to losses are e(pecte+ to 6e recovere+ from a t"ir+ party 6y virt!e of a claim ma+e !n+er an ins!rance contract. Pr%ctic%l Accounting 1
1. 9B Company "as an over+!e @5 note paya6le to First an2 at P"p@,000,000 an+ accr!e+ interest of P"p#0,000. s a res!lt of a restr!ct!ring agreement entere+ on Decem6er $1, )01#, First an2 agree+ to t"e following: a. 6. c. +.
4"e principal o6ligation is re+!ce+ to P"p7,000,000. 4"e accr!e+ interest of P"p#0,000 will 6e waive+. 4"e +ate of mat!rity is e(ten+e+ to Decem6er $1, )01@. nn!al interest of 105 is to 6e pai+ in # years every Decem6er $1 starting in )013.
4"e present val!e of 1 at @5 for # perio+s is 0.7$3 an+ t"e present val!e of an or+inary ann!ity of 1 at @5 for # perio+s is $.$1. *ow m!c" is t"e gain on e(ting!is"ment to 6e recognie+ for )01# ass!ming t"at t"e prevailing mar2et rate for similar note is at @5. . C. D.
P1,17@,000 P3$@,000 P1,#1#00 P0
Solution: A is correct
Original principal ccr!e+ interest Carrying amo!nt of over+!e +e6t an+ interest Restr!ct!re+ principal W present val!e P"p7,000,000 T 0.7$3/ Restr!ct!re+ interest W present val!e
P"p@,000,000 #0,000 P"p@,#0,000 3,1#3,000 ),$17,000
7,#),000
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination P"p7,000,000 T 105 T $.$1/ &ain on e(ting!is"ment 1$.5 of t"e carrying amo!nt of over+!e +e6t an+ interest /
P"p 1,17@,000
Par. #0 of PS $%, Financial $nstruments: Recognition and /easurement , provi+es: 6 a substantial modification of the terms of an eisting financial liability or a part of it (hether or not attributable to the financial difficulty of the debtor) shall be accounted for as an etinguishment of the original financial liability and the recognition of a ne financial liability17 Par. #1 of PS $% provi+es: 6;he difference beteen the carrying amount of a financial liability (or part of a financial liability) etinguished or transferred to another party and the consideration paid4 including any non@cash assets transferred or liabilities assumed4 shall be recogni
Bear 1: #0.00, Bear ): 3).%$, Bear $: 0.00 Bear 1: #0.00, Bear ): 3#.33, Bear $: 0.00 Bear 1: $7.#%, Bear ): 3).%$, Bear $: 0.00 Bear 1: $7.#%, Bear ): 3#.33, Bear $: 0.00
Solution: C is correct
'PS as originally calc!late+ in Bear 1 will 6e #0 )00 million E 3 million/. In t"e following year, it is necessary to calc!late t"e 6on!s element of t"e rig"ts iss!e. 4"is is +one as follows: Comp!ting t"e t"eoretical e(>rig"ts val!e per s"are Fair val!e of all o!tstan+ing s"ares 6efore e(ercise of rig"ts J 4otal amo!nt receive+ from e(ercise of rig"ts <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination !m6er of s"ares o!tstan+ing 6efore e(ercise of rig"ts J !m6er of s"ares iss!e+ in e(ercise of rig"ts #00,000,000 J 30,000,000 Q <<<<<<<<<<<<<<<<<<<<<<<
Q
73
3,000,000 J 1,000,000
Comp!ting t"e a+!stment factor Fair val!e per s"are prior to e(ercise of rig"ts <<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
Q @0 E 73 Q 1.07
4"eoretical e(>rig"ts val!e per s"are
Comp!ting 6asic earnings per s"are Bear 1 as originally reporte+ #0.00 Bear 1 as restate+ )00,000,000 E K3,000,000 ( 1.07L/ Q $7.#% Bear )
$00,000,000
<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<
Q
3).%$
3,000,000 ( 1.07 ( 0.3/ J ,000,000 ( 0.3/ Bear $ $0,000,000 <<<<<<<<<<<<
0.00
,000,000 $. =F Company "as t"e following o!tstan+ing lia6ilities an+ capital as of Decem6er $1, )01): a. 4"ree million or+inary s"ares iss!e+ at P1.00 w"ic" is also t"e par val!e/ t"ree years ago. =F Company "as 6o!g"t 6ac2 ),300 of its s"ares t"is year. 6. P,300,000 million loan wit" &*C an2 mat!ring !g!st $1, )01$. 4"e company "as comm!nicate+ wit" &*C an2 t"at it will roll over t"e sai+ loan on ovem6er 7, )01). 8pon rollover, t"e mat!rity of t"e sai+ loan is +eferre+ to !g!st $1, )01#. 4"is was note+ 6y t"e 6an2. c. cco!nts paya6le amo!nting to P$,#@%,000. 4"is acco!nt +oes not incl!+e t"e following items: 1/ P!rc"ases from s!ppliers amo!nting to P7@,000 s"ippe+ FO s"ipping point. 4"e goo+s were in transit as of Decem6er $1, )01). )/ P!rc"ases from s!ppliers amo!nting to P3@,000 s"ippe+ FO +estination. 4"e goo+s were in transit as of Decem6er $1, )01). +. Divi+en+s on c!m!lative preference s"ares amo!nting to P$,300,000. 4"e +eclaration of t"e sai+ +ivi+en+s was ma+e only on Fe6r!ary , )01$.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination e. P),@%0,000 p!rc"ase commitment entere+ +!ring )01) to 6!y 37,@00 2ilos of corn to 6e +elivere+ ne(t year. f. P7,3%0,000 million loan wit" G*? an2 mat!ring Septem6er $0, )01$. 4"e company "as a cre+it line wit" = an2 an+ plans to +raw+own P"p7,3%0,000 million from = an2 on Septem6er $0, )01$ to pay off t"e loan wit" G*? an2. 4"e new loan will mat!re on Septem6er $0, )01. g. Deferre+ ta( lia6ilities as of Decem6er $1, )01) amo!nte+ to P"p3,7$,000. ". P%,000,000 converti6le +e6t wit" ;CD Company mat!ring G!ne $0, )01$. 4"e Company may eit"er settle t"e +e6t t"ro!g" payment or iss!ance of or+inary s"ares. i. P1,000,000,000 re+eema6le preference s"ares. 4"e preference s"ares were iss!e+ five years ago. 4"e company is reH!ire+ to re+eem t"e s"ares on or 6efore ay $1, )01$. *ow m!c" is t"e c!rrent lia6ility to 6e presente+ in t"e 6alance s"eet as of Decem6er $1, )01) . . C. D .
P1,0)$,#7,000 P1,011,737,000 P1,01#,#7,000 P1,0)0,737,000
Solution: D is correct
c. c.1 f. ". i. 4otal c!rrent lia6ilities
P"p$,#@%,000 7@,000 7,3%0,000 %,000,000 1,000,000,000 P"p1,0)0,737,000
#. On Gan!ary 1, )01#, &B Company contracte+ wit" a contractor to constr!ct an eH!ipment for P#$,000,000. 4"e eH!ipment was complete+ +!ring t"e year. &B Company is reH!ire+ to ma2e t"e following payments in )01): Gan!ary 1 arc" 1 G!ly 1 Septem6er 1 Decem6er 1 4otal
P#,$00,000 )1,300,000 3,000,000 7,00,000 #,00,000 P#$,000,000
&B Company "a+ t"e following o!tstan+ing +e6t as of Decem6er $1, )01$ an+ Decem6er $1, )01#: 115 #>year note wit" simple interest paya6le ann!ally on arc" $1 specifically !se+ to f!n+ t"e constr!ction/ 1)5 3>year loan wit" simple interest paya6le ann!ally on G!ne $0 105 $>year loan wit" simple interest paya6le ann!ally on G!ly $1
P13,000,000 )0,000,000 11,000,000
*ow m!c" interest s"o!l+ 6e capitalie+ 6y &B Company for t"e year en+e+ Decem6er $1, )01#-
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination . . C. D.
P#,@3#,700 P$,07,$0$ P3,130,000 P$,0%),170
Solution: B is correct D%te Gan!ary 1 arc" 1 G!ly 1 Septem6er 1 Decem6er 1
(enditure r%ction #,$00,000 1)E1) )1,300,000 10E1) 3,000,000 E1) 7,00,000 #E1) #,00,000 1E1) verage e(pen+it!res
verage e(pen+it!res pplica6le to specific 6orrowing pplica6le to general 6orrowings
A.er%ge P#,$00,000 17,%1,7 ),300,000 ),3$$,$$$ $@$,$$$ P)7,$$,$$$
P)7,$$,$$$ 13,000,000/ P1),$$,$$$ Principal P)0,000,000 11,000,000 P$1,000,000
1)5 3>year loan wit" simple interest paya6le ann!ally on G!ne $0 105 $>year loan wit" simple interest paya6le ann!ally on G!ly $1 &eneral 6orrowings verage capitaliation rate $,300,000 $1,000,000/
Interest P),#00,000 1,100,000 P$,300,000
11.)%5
Interest on specific 6orrowing 13,000,000 T 115/ Interest on general 6orrowing 1),$$,$$$ T 11.)%5/ "ot%l c%(it%li%ble interest
P1,30,000 1,#),$0$ P,076,0
3. G= Company, on a+option of PS #1, Agriculture, "as reclassifie+ certain assets as 6iological assets in its )011 Statement of Financial Position. 4"e total val!e of t"e entitys 6iological assets as of Decem6er $1, )01$ was P),000,000 comprising: Fr!it>6earing trees =an+ !n+er trees Roa+s near t"e plantation
P1,700,000 )00,000 100,000
On Fe6r!ary )@, )01#, t"e owner of t"e entity p!rc"ase+ P$00,000 wort" of farm animals from "is frien+ to 6e !se+ in t"e 6!siness. *owever, s!c" animals +o not "ave a H!ote+ mar2et price, an+ is not tra+e+ in an active mar2et. Ot"er val!ation met"o+s are also clearly inappropriate or !nwor2a6le. 4"e estimate+ lives of t"e trees an+ t"e animals are )0 years an+ 3 years, respectively. D!ring t"e last H!arter of t"e year )01#, t"e following events occ!rre+: Increase in fair val!e in )01) +!e to growt" of trees Decrease in fair val!e +!e to "arvest *arvest of fr!its 'stimate+ fair val!e of t"e animals 6ase+ on t"e !+gment of t"e entitys CP
P100,000 %0,000 300,000 300,000
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination s of t"e Decem6er $1, )01# Statement of Financial Position, "ow m!c" s"o!l+ 6e presente+ as iological ssets 6y G= Company . . C. D .
P1,%0,000 P),010,000 P),)10,000 P1,%30,000
Solution: A is correct
Fair val!e of fr!it 6earing trees, Decem6er $1, )01$ Decrease in fair val!e +!e to "arvest Increase in fair val!e to +!e to growt" of trees Fair val!e of fr!it 6earing trees, Decem6er $1, )01#
P1,700,000 %0,000/ 100,000 P1,710,000
Farm animals, Fe6r!ary )@, )01# Depreciation of farm animals P$00,000E3/ T 10E1) Farm animals, Decem6er $1, )01#
P$00,000 30,000/ P)30,000
Fr!it 6earing trees Farm animals 4otal
P1,710,000 )30,000 P1,%0,000
. =e( Company s"ippe+ inventory on consignment to =ionel Company t"at cost P)0,000. =ionel Company pai+ P300 for a+vertising t"at was reim6!rsa6le from =e( Company. t t"e en+ of t"e year, 705 of t"e inventory was sol+ for P$0,000. 4"e agreement states t"at a commission of )05 will 6e provi+e+ to =ionel Company for all sales. 9"at amo!nt of inventory on consignment remains in t"e 6alance s"eet of =e( Company. 0
. #,@00
C. ,000
D. ,130
Solution: C is correct
Cost of inventory sent o!t on consignment !ltiply 6y: 5 of goo+s in t"e "an+ of consignee Inventory on consignment
)0,000 $05 6,000
C
7. On Gan!ary 1, )01#, G Corporation p!rc"ase+ several pieces of inventory for P)0,000. *owever, SC Company, t"e seller agree+ to wait for e(actly two years 6efore receiving payment. 4"en, on Decem6er $1, )01#, G Company sells t"e entire sai+ inventory to B Corporation for P$0,000. G Company agrees to wait for e(actly t"ree years to receive t"e P$0,000 payment. reasona6le interest rate for t"ese transactions is @5 alt"o!g" no separate cas" interest is to 6e pai+ on eit"er t"e p!rc"ase or t"e sale. 4"e gross profit t"at G Company s"o!l+ recognie for t"e year en+e+ Decem6er $1, )01# is Ro!n+ off present val!e factors to 3 +ecimal places/: . 10,000 Solution: C is correct
.
7,%$@
C.
,@
D.
$,@13
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination
Sales =ess: Cost of sales &ross Profit
$0,000 ( P;F P1 W @5 for $ perio+s )0,000 ( P;F P1 W @5 for ) perio+s
0.7%$@$ 0.@37$#
)$,@13 17,1#7 6,66! C
@. In Decem6er )01#, G!+it" Company 6egan incl!+ing one co!pon in eac" pac2age of can+y t"at it sells an+ offers a toy in e(c"ange for P3 an+ 3 co!pons. 4"e toys cost P1) eac" an+ an a++itional P# to +eliver it to c!stomers. 'vent!ally, @05 of t"e co!pons will 6e re+eeme+. D!ring Decem6er, G!+it" Company sol+ ))0,000 pac2ages of can+y, 70,000 co!pons were alrea+y sent for re+emption of w"ic" )0,000 is still !n+er processing 6y year en+. 4"e estimate+ lia6ility in t"e Decem6er $1, )01# 6alance s"eet of G!+it" Company is .
)$$,)00
.
)77,)00
C.
$$0,000
D.
$@7,)00
Solution: B is correct
4otal co!pons iss!e+ !ltiply 6y: Co!pons e(pecte+ to 6e re+eeme+ =ess: co!pons receive+ an+ processe+ 70,000 > )0,000/ Remaining co!pons e(pecte+ to 6e re+eeme+ an+ processe+/ in t"e f!t!re Divi+e 6y: conversion rate toysEco!pons '(pecte+ n!m6er of toys to 6e given away !ltiply 6y: cost per !nit 1) J # >3/ 4otal estimate+ lia6ility 1)E$1E10
))0,000 @05 17,000 30,000 1),000 3 )3,)00 11 277,200
B
%. arry Company p!rc"ase+ eH!ipment 6y ma2ing a +own payment of P#,000 an+ iss!ing a note paya6le for P1@,000. payment of P,000 is to 6e ma+e at t"e en+ of eac" year for t"ree years. 4"e applica6le rate of interest is @5. S"ipping c"arges for t"e eH!ipment were P),000, an+ installation c"arges were P$,300. *ow m!c" is t"e capitalie+ cost of t"e eH!ipment Ro!n+ off present val!e factors to ) +ecimal places/. 1%,#@0
. )1,#@0
C. )#,%@0
D. )7,300
Solution: C is correct
Down payment ++: P; of f!t!re installments W @5 S"ipping cost Installation cost Capitalie+ cost of eH!ipment
,000 ( ).3@/
#,000 13,#@0 ),000 $,300 24,9!0
10. D Company "a+ t"e following +eferre+ ta( 6alances at reporting +ate > Deferre+ ta( assets, P1,)00,000U Deferre+ ta( lia6ilities, P$,000,000. 'ffective from t"e first +ay of t"e ne(t financial perio+, t"e company rate of income ta( was re+!ce+ from #05 to $05. 4"e a+!stment to income ta( e(pense to recognie t"e impact of t"e ta( rate c"ange is: . Dr 00,000 Solution: D is correct
. Cr 00,000
C. Dr #30,000
D. Cr #30,000
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination
4a( rate D4 #05 1,)00,000 $05 %00,000 et c"ange +ecrease/ Pr%ctic%l Accounting 2
D4= $,000,000 ),)30,000
et D4= amo!nt Q 1,@00,000 Q 1,$30,000 #30,000/ D&
1' &eorge Company wor2s on a P"p70 million contract in )01# to constr!ct an office 6!il+ing. D!ring )01#, &eorge Company !ses t"e cost to cost met"o+. s of Decem6er $1, )01#, t"e 6alances in certain acco!nts were: Constr!ction in Progress, P"p)#.3 millionU cco!nts Receiva6le, P"p).# millionU an+ Progress illings, P"p1) million. 4"e estimate+ f!t!re costs to complete t"e proect totale+ P"p$1.@3 million as of Decem6er $1, )01#.
4"e act!al cost inc!rre+ in )01# was P"p17.00 million . . P"p)#.30 million C. P"p17.13 million D P"p70.00 million . Solution: C is correct
Constr!ction in Progress 4otal Contract Price Percentage of completion 'stimate+ f!t!re costs to complete Percentage yet to 6e complete+ 4otal estimate+ cost 'stimate+ f!t!re costs to complete ct!al cost inc!rre+ in )01#
P"p)#.3 million 70.0 million $35 P"p$1.@3 million 35 #%.00 million $1.@3 million P"p17.13 million
). Presente+ 6elow are items ta2en from t"e !na+!ste+ trial 6alances of Progressive Company an+ its 6ranc" on Decem6er $1, )01#. *ome Office oo2s ranc" oo2s S"ipments to 6ranc" P"p$00,000 llowance for overval!ation of 6ranc" inventory %%,%00 S"ipments from "ome office P"p$%0,000 P!rc"ases from o!tsi+ers/ 1##,00 erc"an+ise inventory, Gan!ary 1 3#,00 erc"an+ise inventory, Decem6er $1 #@,730 Sales 3#0,000 '(penses 31,000 It is t"e companys policy to 6ill all 6ranc"es for merc"an+ise s"ipments at $05 a6ove cost. *ow m!c" of t"e 6ranc" inventory on Gan!ary 1 represents p!rc"ases from o!tsi+ers. P"p11,700 . P"p#),000 C. P"p#),%00 D. P"p11,000
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination
Solution: A is correct
llowance for overval!ation of 6ranc" inventory, Decem6er $1 Over allowance relate+ to s"ipments +!ring t"e year llowance for overval!ation of 6ranc" inventory, Gan!ary 1 erc"an+ise inventory, Gan!ary 1 S"ipments from "ome office %,%00E$051$05/ erc#%ndise in.entor$ (urc#%sed )rom outsiders
P"p%,%00 %0,000 P"p%,%00 P"p3#,00 #),%00 P#(11,700
$. On Gan!ary ), )01#, Polo Corporation p!rc"ase+ @0 percent of See+ Companys common stoc2 for P"p)1,000. Polo Corporation "as assesse+ t"at it o6taine+ control over See+ Company in accor+ance wit" PFRS 10, Consolidated Financial Statements . P"p$0,000 of t"e e(cess of t"e consi+eration pai+ over t"e 6oo2 val!e of t"e net assets of See+ Company is attri6!te+ to a +eprecia6le asset wit" an economic life of ten years an+ t"e remaining 6alance to goo+will. On t"e +ate of acH!isition, See+ reporte+ common stoc2 o!tstan+ing of P"p@0,000 an+ retaine+ earnings of P"p1#0,000, an+ Polo reporte+ common stoc2 o!tstan+ing of P"p$30,000 an+ retaine+ earnings of P"p3)0,000. For t"e year en+e+ Decem6er $1, )01#, See+ reporte+ net income of P"p$3,000 an+ pai+ +ivi+en+s of P"p13,000. Polo reporte+ earnings from its separate operations of P"p%3,000 an+ pai+ +ivi+en+s of P"p#,000. &oo+will "a+ 6een impaire+ 6y P"p),000 on Decem6er $1, )01#. *ow m!c" is t"e consoli+ate+ net income attri6!ta6le to owners of Polo on Decem6er $1, )01#. P"p11@,300 . P"p11@,000 C. P"p1),130 D. P"p1),000 Solution: B is correct
P!rc"ase price Proportionate s"are of CI in 6oo2 val!e of net assets of See+ )05 ( ))0,000/ =ess 6oo2 val!e of net assets of See+ Company '(cess of p!rc"ase price an+ CI over t"e 6oo2 val!e of net assets of See+ =ess fair val!e a+!stment on t"e acH!ire+ +eprecia6le asset Difference attri6!ta6le to goo+will
P"p)1,000 ##,000 ))0,000 #0,000 $0,000 P"p10,000
et income of Polo S"are in net income of See+ @05 ( $3,000/ mortiation of e(cess of fair val!e over 6oo2 val!e of t"e +eprecia6le asset $0,000E10/ Impairment of goo+will Consolid%ted net income %ttribut%ble to o-ners o) Polo
P"p%3,000 )@,000 $,000/ ),000/ P#(11!,000
#. 4"e 4ommy Store 6egan operations 6y selling w"olesale merc"an+ise on an installment 6asis an+ !ses t"e installment met"o+ of acco!nting. 4erms incl!+e +own payment of )05 an+ 6alance paya6le in t"ree yearsU 305 in t"e year of saleU $05 in t"e year afterU an+ )05 in t"e t"ir+ year. 4ommy incl!+es a )35 mar2>!p on cost for its selling price. Installment sales reporte+ 6y 4ommy are P"p330,000 in )010, P"p770,000 in )01$, an+ P"p%0@,000 in )01#.
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination *ow m!c" is t"e installment acco!nts receiva6le an+ t"e !nrealie+ gross profit at t"e en+ of )01# P"p#@,#00U P"p%7,)@0 . . P"p37#,#00U P"p1)1,00 C. P"p%7,)@0U P"p#@,#00 D P"p1)1,00U P"p37#,#00 . Solution: A is correct
)01$ )01#
P"p770,000@05)05 P"p%0@,000@05305 Installment receiva6le, en+ of )01) 8nrealie+ gross profit P"p#@,#00E1)35)35/
P"p1)$,)00 $$,)00 P"p#@,#00 P"p%7,)@0
3. Bam Company "as !se+ a tra+itional cost acco!nting system to apply H!ality control costs !niformly to all pro+!cts at a rate of 1#.35 of +irect la6or cost. ont"ly +irect la6or cost for tswete ma2e>!p is P"p)7,300. In an attempt to +istri6!te H!ality control costs more eH!ita6ly, t"e company is consi+ering activity>6ase+ costing. 4"e mont"ly +ata s"own in t"e c"art 6elow "ave 6een gat"ere+ for tswete ma2e>!p: Acti.it$
Incoming material inspection In>process inspection Pro+!ct certification
Cost Dri.er
4ype of material !m6er of !nits Per or+er
Cost %tes
P"p11.30 per type P"p0.1# per !nit P"p77 per or+er
Eu%ntit$ )or Ats-ete 1) types 17,300 !nits )3 or+ers
4"e mont"ly H!ality control cost assigne+ to tswete ma2e>!p !sing activity>6ase+ costing is "ow m!c" "ig"er or lower t"an t"e cost !sing t"e tra+itional system P"p@,300.30 "ig"er t"an t"e cost !sing t"e tra+itional system . . P"p3)3.30 lower t"an t"e cost !sing t"e tra+itional system C. P"p@,300.30 lower t"an t"e cost !sing t"e tra+itional system D P"p3)3.30 "ig"er t"an t"e cost !sing t"e tra+itional system . Solution: D is correct "r%dition%l Costing P"p)7,300 ( 1#.35/ Acti.it$ B%sed Costing Incoming material inspection P"p11.30 ( 1)/ In>process inspection P"p0.1# ( 17,300/ Pro+!ct certification P"p77 ( )3/ Di))erence
P"p$,%@7.30 P"[email protected] ),#30.00 1,%)3.00
P"p#,31$.00 P#(525'50&
. C an+ D are partners s"aring profits an+ losses in t"e ratio of :#, respectively. On Gan!ary 1, t"e partners +eci+e+ to a+mit 4 as a new partner !pon "is investment of P"p%,000. On t"is +ate, t"e interest in t"e partners"ip of C an+ D are as follows: C, P"p1$@,000U D, P"p111,00. ss!ming t"at t"e new partner is given 1E# interest in t"e firm. 4"e agree+ capital of t"e partners"ip is P"p$0,000. 4"e a+mission of a new partner will res!lt to w"ic" of t"e following:
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination . . C. D.
&oo+will is P"p)0,#00. on!s from D is P"p),#00. on!s to 4 is P"p,000. Capital 6alance of C after a+mission of 4 to t"e partners"ip is P"p130,)#0.
Solution: D is correct
Capital 6efore a+mission of 4 Investment 6y 4 &oo+will on!s to ol+ partners Capital after a+mission of 4
C P"p1$@,000
D P"p111,00
@,#0 $,00 P"p130,)#0
3,70 ),#00 P"p11%,70
" )35/ P"p< %,000
,000/ P"p%0,000
"ot%l P"p)#%,00 %,000 1#,#00 < P"p$0,000
7. 4"e Roc2well Company of a2ati opene+ a 6ranc" at Ce6! on Gan!ary 1, )01# to e(pan+ t"e mar2et of its pro+!ct. erc"an+ise s"ippe+ +!ring )01# to t"e Ce6! 6ranc" totale+ P"p3%,000, an+ t"is incl!+e+ a profit of )35 6ase+ on cost. t t"e en+ of t"e year, t"e inventory was P"p,000 at 6ille+ price. Sales on acco!nt, P"p7),300U '(penses, P"p1,300, of w"ic" P"p1,)00 were !npai+ on Decem6er $1, )01#U Cas" receive+ from c!stomers on acco!nt, P"p#0,000, after allowing cas" +isco!nts of P"p1,#70U Cas" remitte+ to t"e "ome office +!ring t"e year, P"p$$,000. *ow m!c" is t"e income of t"e 6ranc" in )01# insofar as t"e "ome office is concerne+ P"p1$,00 . . P"p1),1$0 C. P"p1,3$0 D P"p$,000 . Solution: B is correct
Sales Cas" +isco!nts Cost of goo+s sol+ KP"p3%,000>P"p,000/E1)35L '(penses Br%nc# income
P"p7),300 1,#70/ #),#00/ 1,300/ P#(12,10
@. *IG Company file+ a vol!ntary 6an2r!ptcy petition on Septem6er $0, )01# an+ t"e statement of affairs reflects t"e following amo!nts:
Assets ssets ple+ge+ wit" f!lly sec!re+ cre+itors ssets ple+ge+ wit" partially sec!re+ cre+itors Free assets ;i%bilities =ia6ilities wit" priority F!lly sec!re+ cre+itors Partially sec!re+ cre+itors 8nsec!re+ cre+itors
C%rr$ing Amount
%ir %lue
P"p%10,000 311,@73 1,1$7,300
P"p1,0@0,)3 $#1,)30 7%,)30
11$,730 7$%,$73 3@,730 1,#7@,730
NFJPIA Region XII - 8th Annual Regional Convention Mock Board Exaination ss!me t"at t"e assets are converte+ into cas" at t"e estimate+ fair val!es an+ t"e 6!siness is liH!i+ate+. *ow m!c" s"o!l+ partially sec!re+ cre+itors receive P"p$#1,)30 . . P"p311,@73 C. P"p#77,730 D P"p3@,730 . Solution: C is correct
ssets ple+ge+ wit" partially sec!re+ cre+itors S"are in free assets K05 ( 3@,730 > $#),)30/L "ot%l c%s# to be recei.ed b$ (%rti%ll$ secured creditors
P"p$#1,)30 1$,300 P#(477,750
'(cess assets ple+ge+ wit" f!lly sec!re+ cre+itors 1,0@0,)3 > 7$%,$73/ Free assets 4otal free assets =ess lia6ilities wit" priority et free assets 4otal !nsec!re+ lia6ilities 3@,730 > $#),)30 J 1,#7@,730/ '(pecte+ recovery rate
P"p$#1,)30 7%,)30 1,1$7,300 11$,730/ 1,0)$,730 1,70,)30 0.05
%. C Company, engage+ in f!rnit!re 6!siness aro!n+ t"e glo6e, receive+ an or+er from a ritis" Corporation !n+er t"e term of FO s"ipping point on Decem6er 1, )01#. 4"is was 6ille+ for %@,000 8 po!n+s an+ paya6le on Gan!ary $1, )013. 4"e f!rnit!re was s"ippe+ an+ invoice+ on Decem6er 1), )01#. 4"is s"ipment was receive+ 6y t"e c!stomer on Decem6er )3, )01#. Relevant spot e(c"ange rates for 8 po!n+ to P"p on vario!s +ates follow:
Decem6er 1, )01# Decem6er 1), )01# Decem6er )3, )01# Decem6er $1, )01# Gan!ary $1, )013
!ying Spot Rate P"p@.7% @.@) @.73 %.01 @.%3
Selling Spot Rate P"p@.@3 @.%1 @.@0 %.11 %.0)
*ow m!c" is t"e foreign e(c"ange gain or loss to 6e reporte+ on t"is transaction in )01# income statement of C Company ass!ming t"at t"e f!nctional c!rrency of C Company is P"ilippine Peso P"p1@,)0 gain . . P"p@,@)0 loss C. P"p1%,00 loss D P"p1%,00 gain . Solution: A is correct
!ying spot rate as of Decem6er $1, )01) =ess: !ying spot rate as of Decem6er 1), )01)
P"p%.01 @.@)
