Professional Documents
Culture Documents
1.
(MAS-EASY) When estimating cash flow for use in capital budgeting, depreciation is:
a. Included as a cash or other cost.
b. Excluded for all purposes in the computation.
c. Utilized to estimate the salvage value of an investment.
d. Utilized in determining the tax costs or benefit.
2.
(MAS-EASY) In using regression analysis, which measure indicates the extent to which a change in
the independent variable explains a change in the dependent variable?
a. p-value.
b. R-squared.
c. Standard error.
d. t-statistic.
3.
(MAS-EASY) Which of the following phrases defines the internal rate of return on a project?
a. The number of years it takes to recover the investment.
b. The discount rate at which the net present value of the project equals zero.
c. The discount rate at which the net present value of the project equals one.
d. The weighted-average cost of capital used to finance the project.
4.
5.
6.
(MAS-AVERAGE) The full-employment gross domestic product is P1.3 trillion, and the actual gross
domestic product is P1.2 trillion. The marginal propensity to consume is 0.8. When inflation is
ignored, what increase in government expenditures is necessary to produce full employment?
7.
(MAS-AVERAGE) Trendy Co. produced and sold 30,000 backpacks during the last year at an
average price of P25 per unit. Unit variable costs were the following:
Variable manufacturing costs
Variable selling and administrative costs
Total
P9
6
P15
Total fixed costs were P250,000. There was no year-end work-in-process inventory. If Trendy had
spent an additional P15,000 on advertising, then sales would have increased by P30,000. If Trendy
had made this investment, what change would have occurred in Trendy's pretax profit?
Solution: (P3,000) or P3,000 decrease
Compute contribution margin in total:
Selling
variable
= contribution
price
costs
margin
P25
P15
= P10
x
x
8.
=
=
Total contribution
margin
P12,000
(15,000)
(P3,000)
5,000
P111,625
P23.50
P24
9.
72,800
72,348
(452)
The percentage change in the expenses is simply the change divided by the base year computed as follows:
(452)/ 72,800 = .6% decrease.
10
.
11
.
2%
1%
3%
(MAS-DIFFICULT) Bethard Corporation produces and sells a single product. Data concerning that
product appear below:
Selling price
Variable expenses
Contribution margin
Per Unit
P120
24
P 96
Percent of Sales
100%
20%
80%
Fixed expenses are P354,000 per month. The company is currently selling 5,000 units per month.
The marketing manager would like to cut the selling price by P8 and increase the advertising
budget by P23,000 per month. The marketing manager predicts that these two changes would
increase monthly sales by 600 units. What should be the overall effect on the company's monthly
net operating income of this change?
Solution: (P10,200) or P10,200 decrease
New selling price (P120 P8)...........................................................
New contribution margin (P112 P24)..............................................
New unit monthly sales (5,000 units + 600 units)..............................
P112
P88
5,600
12
.
P492,800
480,000
12,800
23,000
(P10,200)
(MAS-DIFFICULT) Weller Industrial Gas Corporation supplies acetylene and other compressed
gases to industry. Data regarding the store's operations follow:
Sales are budgeted at P330,000 for November, P300,000 for December, and P320,000 for
January.
Collections are expected to be 85% in the month of sale, 14% in the month following the
sale, and 1% uncollectible.
The cost of goods sold is 60% of sales.
The company purchases 80% of its merchandise in the month prior to the month of sale and
20% in the month of sale. Payment for merchandise is made in the month following the
purchase.
Other monthly expenses to be paid in cash are P21,200.
Monthly depreciation is P21,000.
Ignore taxes.
Statement of Financial Position
October 31
Assets:
Cash
Accounts receivable (net of allowance for uncollectible accounts)
Inventory
Property, plant and equipment (net of P594,000 accumulated
depreciation)
Total assets
1,004,000
P1,267,400
P 196,000
620,000
451,400
P1,267,400
22,000
83,000
158,400
Given the above data, excess (deficiency) of cash available over disbursements for the month of
December is equal to?
Solution: P96,400 (excess)
Cash receipts...................................................
Cash disbursements:
Disbursements for merchandise...................
Other monthly expenses..............................
Total cash disbursements.............................
Excess (deficiency) of cash available over
disbursements.............................................
13
.
November
P363,500
December
P301,200
196,000
21,200
217,200
183,600
21,200
204,800
P146,300
P 96,400
(MAS-DIFFICULT) Ulrich Company has a Castings Division which does casting work of various
types. The company's Machine Products Division has asked the Castings Division to provide it with
20,000 special castings each year on a continuing basis. The special casting would require P12 per
unit in variable production costs.
In order to have time and space to produce the new casting, the Castings Division would have to
cut back production of another casting - the RB4 which it presently is producing. The RB4 sells for
P40 per unit, and requires P18 per unit in variable production costs. Boxing and shipping costs of
the RB4 are P6 per unit. Boxing and shipping costs for the new special casting would be only P1
per unit, thereby saving the company P5 per unit in cost. The company is now producing and
selling 100,000 units of the RB4 each year. Production and sales of this casting would drop by 25
percent if the new casting is produced. Some P240,000 in fixed production costs in the Castings
Division are now being covered by the RB4 casting; 25 percent of these costs would have to be
covered by the new casting if it is produced and sold to the Machine Products Division.
According to the formula in the text, what is the lowest acceptable transfer price from the viewpoint
of the selling division?
Solution: P33
Transfer Price = Variable cost + Lost contribution margin per unit on outside sales
Variable costs:
Variable production costs....................................
Boxing and shipping...........................................
Total....................................................................
P12
1
P13
P40
24
P16
25,000
P400,000
14
.
(MAS-DIFFICULT) (Ignore income taxes in this problem.) The management of an amusement park
is considering purchasing a new ride for P60,000 that would have a useful life of 15 years and a
salvage value of P8,000. The ride would require annual operating costs of P26,000 throughout its
useful life. The company's discount rate is 10%. Management is unsure about how much additional
ticket revenue the new ride would generate-particularly since customers pay a flat fee when they
enter the park that entitles them to unlimited rides. Hopefully, the presence of the ride would attract
new customers.
Required: How much additional revenue would the ride have to generate per year to make it an
attractive investment?
Solution: P33,367
Cost of asset..........................
Annual operating costs..........
Salvage value........................
Net present value...................
Years
Now
1-15
15
Amount
P(60,000)
P(26,000)
P8,000
10%Factor
1.000
7.606
0.239
Present Value
(P 60,000)
( 197,756)
1,912
(P255,844)
P255,844 7.606 = P33,637 additional revenue per year would be necessary to justify the investment. This
much additional revenue would result in a zero net present value. Any less than this and the net present
value
would be negative. Any more than this and the net present value would be positive.
15
.
(MAS-DIFFICULT) The following information relates to Konbu Corporation for last year:
Price earnings ratio............
Dividend payout ratio.........
Earnings per share............
15
30
%
P5
AUDITING THEORY
1.
2.
(AT-EASY) Which of the following documents the procedures that are applied and the conclusions
reached in an audit engagement?
a. Management representation letter.
b. Audit guide.
c. Auditor's report.
d. Working papers.
3.
(AT-EASY) An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of
the following management assertions is supported by this test?
a. Valuation and allocation.
b. Completeness.
c. Rights and obligations.
d. Presentation and disclosure.
4.
(AT-EASY) Obtaining an understanding of an internal control involves evaluating the design of the
control and determining whether the control has been:
a. Authorized.
b. Implemented.
c. Tested.
d. Monitored.
5.
(AT-EASY) Which of the following services, if any, may an accountant who is not independent
provide?
a. Compilations, but not reviews.
b. Reviews, but not compilations.
c. Both compilations and reviews.
d. No services.
6.
(AT-AVERAGE) When there has been a change in accounting principles, but the effect of the
change on the comparability of the financial statements is not material, the auditor should:
a. Not refer to the change in the auditor's report.
b. Refer to the note in the financial statements that discusses the change.
c. Refer to the change in an emphasis-of-matter paragraph.
d. Explicitly state whether the change conforms with GAAP.
7.
(AT-AVERAGE) An entity prepares its financial statements on its income tax basis. A description of
how that basis differs from GAAP should be included in the:
a. Notes to the financial statements.
b. Auditor's engagement letter.
c. Management representation letter.
d. Introductory paragraph of the auditor's report.
8.
(AT-AVERAGE) Which of the following would a successor auditor ask the predecessor auditor to
provide after accepting an audit engagement?
a. Disagreements between the predecessor auditor and management as to significant accounting
policies and principles.
b. The predecessor auditor's understanding of the reasons for the change of auditors.
c. Facts known to the predecessor auditor that might bear on the integrity of management.
d. Matters that may facilitate the evaluation of financial reporting consistency between the current
and prior years.
9.
(AT-AVERAGE) Which of the following types of risk increases when an auditor performs substantive
analytical audit procedures for financial statement accounts at an interim date?
a. Inherent.
b. Control.
c. Detection.
d. Sampling.
10
.
(AT-AVERAGE) Which of the following circumstances would be inappropriate for the auditor to
communicate to those charged with governance?
a. A material misstatement was noted by the auditor and corrected by management.
b. No significant deficiencies in internal control exist that would affect the financial statements.
c. The auditor is requesting representations regarding the financial statements from management.
d. Management has consulted with other accountants about accounting and auditing matters during
the period under audit.
11
.
(AT-DIFFICULT) On the last day of the fiscal year, the cash disbursements clerk drew a company
check on bank A and deposited the check in the company account in bank B to cover a previous
theft of cash. The disbursement has not been recorded. The auditor will best detect this form of
kiting by:
a. examining the composition of deposits in both bank A and bank B subsequent to year-end.
b. examining paid checks returned with the bank statement of the next account period after yearend.
c. preparing, from the cash disbursements records, a summary of bank transfers for one week prior
to and subsequent to year-end.
d. comparing the detail of cash receipts as shown by the clients cash receipts records with the
detail on the confirmed duplicate deposit tickets for three days prior to and subsequent to year-end.
12
.
(AT-DIFFICULT) Which of the following is an internal control weakness for a company whose
inventory of supplies consists of a large number of individual items?
a. The cycle basis is used for physical counts.
b. Supplies of relatively little value are expensed when purchased.
c. Perpetual inventory records are maintained only for items of significant value.
d. The storekeeper is responsible for maintenance of perpetual inventory records.
13
.
(AT-DIFFICULT) The major reason that the difference and ratio estimation methods would be
expected to produce audit efficiency is that the:
a. beta risk may be completely ignored.
b. variability of the populations of differences or ratios is less than that of the populations of book
values or audited values.
c. number of members of the populations of differences or ratios is smaller than the number of
members of the population of book values.
d. calculations required in using difference or ratio estimation are less arduous and fewer than
those required when using direct estimation.
14
(AT-DIFFICULT) Which of the following types of evidence is not available when using substantive
tests of transactions?
a. Documentation.
b. Confirmation.
c. Inquiries of the client.
d. Reperformance.
15
.
(AT-DIFFICULT) For effective internal control purposes, the vouchers payable department generally
should:
a. obliterate the quantity ordered on the receiving department copy of the purchase order.
b. stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
c. establish the agreement of the vendors invoice with the receiving report and purchase order.
d. ascertain that each requisition is approved as to price, quantity, and quality by an authorized
employee.
THEORY OF ACCOUNTS
1.
(TOA-EASY) Which of the following characteristics of accounting information primarily allows users
of financial statements to generate predictions about an organization?
a. Reliability.
b. Timeliness.
c. Neutrality.
d. Relevance.
2.
(TOA-EASY) When purchasing a bond, the present value of the bond's expected net future cash
inflows discounted at the market rate of interest provides what information about the bond?
a. Price.
b. Par.
c. Yield.
d. Interest.
3.
(TOA-EASY) According to the conceptual framework, which of the following correctly pairs a
primary qualitative characteristic of accounting information with one of its components?
a. Relevance and Timeliness.
b. Relevance and Verifiability.
c. Reliability and Predictive Value.
d. Reliability and Feedback Value.
4.
reported?
a. Change in temporarily restricted net assets.
b. Change in unrestricted net assets.
c. Change in permanently restricted net assets.
d. Contra-account to associated revenues.
5.
6.
(TOA-AVERAGE) Kenn City obtained a municipal landfill and passed a local ordinance that
required the city to operate the landfill so that the costs of operating the landfill, as well as the
capital costs, are to be recovered with charges to customers. Which of the following funds should
Kenn City use to report the activities of the landfill?
a. Enterprise.
b. Permanent.
c. Special revenue.
d. Internal service.
7.
8.
(TOA-AVERAGE) The funded status of a defined benefit pension plan for a company should be
reported in
a. The income statement.
b. The statement of cash flows.
c. The statement of financial position.
d. The notes to the financial statements only.
9.
10
.
11
.
(TOA-DIFFICULT) Each of the following would be considered a Level 2 observable input that could
be used to determine an asset or liability's fair value, except:
a. Quoted prices for identical assets and liabilities in markets that are not active.
b. Quoted prices for similar assets and liabilities in markets that are active.
c. Internally generated cash flow projections for a related asset or liability.
d. Interest rates that are observable at commonly quoted intervals.
12
.
b. The financial statements for Years 1 and 2 should not be restated; financial statements for Year 3
should disclose the fact that the error was made in prior years.
c. The financial statements for Years 1 and 2 should not be restated; the cumulative effect of the
error on Years 1 and 2 should be reflected in the carrying amounts of assets and liabilities as of the
beginning of Year 3.
d. The financial statements for years 1 and 2 should be restated; the cumulative effect of the error
on Years 1 and 2 should be reflected in the carrying amounts of assets and liabilities as of the
beginning of Year 3.
13
.
(TOA-DIFFICULT) Wood Co.'s dividends on noncumulative preferred stock have been declared but
not paid. Wood has not declared or paid dividends on its cumulative preferred stock in the current
or the prior year and has reported a net loss in the current year. For the purpose of computing basic
earnings per share, how should the income available to common stockholders be calculated?
a. The current-year dividends and the dividends in arrears on the cumulative preferred stock should
be added to the net loss, but the dividends on the noncumulative preferred stock should not be
included in the calculation.
b. The dividends on the noncumulative preferred stock should be added to the net loss, but the
current-year dividends and the dividends in arrears on the cumulative preferred stock should not be
included in the calculation.
c. The dividends on the noncumulative preferred stock and the current-year dividends on the
cumulative preferred stock should be added to the net loss.
d. Neither the dividends on the noncumulative preferred stock nor the current-year dividends and
the dividends in arrears on cumulative preferred stock should be included in the calculation.
14
.
15
.
(TOA-DIFFICULT) Neely Co. disclosed in the notes to its financial statements that a significant
number of its unsecured trade account receivables are with companies that operate in the same
industry. This disclosure is required to inform financial statement users of the existence of:
a. Concentration of credit risk.
b. Concentration of market risk.
c. Risk of measurement uncertainty.
d. Off-balance sheet risk of accounting loss.
PRACTICAL ACCOUNTING 1
1.
(P1-EASY) Sun Inc. factors P2,000,000 of its accounts receivables with recourse for a finance
charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for
possible adjustments. Sun estimates the fair value of the recourse liability at P100,000. What would
be recorded as a gain (loss) on the transfer of receivables?
Solution: (P160,000) or P160,000 loss
Finance charge
Recourse liability
Loss on sale
2.
(P1-EASY) Bell Inc. took a physical inventory at the end of the year and determined that P475,000
of goods were on hand. In addition, the following items were not included in the physical count. Bell,
Inc. determined that P60,000 of goods were in transit that were shipped f.o.b. destination (goods
were actually received by the company three days after the inventory count).The company sold
P25,000 worth of inventory f.o.b. destination. What amount should Bell report as inventory at the
end of the year?
Solution: P 500,000
P475,000 + P25,000 = P500,000
3.
(P1-EASY) Wilson Co. purchased land as a factory site for P600,000. Wilson paid P60,000 to tear
down two buildings on the land. Salvage was sold for P5,400. Legal fees of P3,480 were paid for
title investigation and making the purchase. Architect's fees were P31,200. Title insurance cost
P2,400, and liability insurance during construction cost P2,600. Excavation cost P10,440. The
contractor was paid P2,200,000. An assessment made by the city for pavement was P6,400.
Interest costs during construction were P170,000.
Solution: P 666,880
P600,000 + P60,000 P5,400 + P3,480 + P2,400 + P6,400 = P666,880
4.
P600,000
140,000
700,000
400,000
What amount should MaBelle record as research & development expense in 2010?
Solution: P 550,000
(P600,000 4) + P400,000 = P550,000
5.
(P1-EASY) Warranty4U provides extended service contracts on electronic equipment sold through
major retailers. The standard contract is for three years. During the current year, Warranty4U
provided 21,000 such warranty contracts at an average price of P81 each. Related to these
contracts, the company spent P200,000 servicing the contracts during the current year and expects
to spend P1,050,000 more in the future. What is the net profit that the company will recognize in the
current year related to these contracts?
Solution: P 367,000
[(21,000 P81) x 3 yrs.] P200,000 = P367,000
6.
(P1-AVERAGE) Confectioners, a chain of candy stores, purchases its candy in bulk from its
suppliers. For a recent shipment, the company paid P3,000 and received 8,500 pieces of candy
that are allocated among three groups. Group 1 consists of 2,500 pieces that are expected to sell
for P0.25 each. Group 2 consists of 5,500 pieces that are expected to sell for 0.60 each. Group 3
consists of 500 pieces that are expected to sell for P1.20 each. Using the relative sales value
method, what is the cost per item in group 3?
Solution: P 0.796
(2,500 P0.25) + (5,500 P0.60) + (500 P1.20) = P4,525; [(500 P1.20) P4,525] P3,000 = P398
500 = P0.796
7.
Salvage
P14,000
B
C
75,000
164,000
7,500
8,000
5 years
12 years
$135,000
10
$4,500,000x1.03
2/9
9.
(P1-AVERAGE) On January 1, 2010, Korsak, Inc. established a stock appreciation rights plan for its
executives. It entitled them to receive cash at any time during the next four years for the difference
between the market price of its common stock and a pre-established price of P20 on 60,000 SARs.
Current market prices of the stock are as follows:
January 1, 2010
December 31, 2010
December 31, 2011
December 31, 2012
Compensation expense relating to the plan is to be recorded over a four-year period beginning
January 1, 2010. On December 31, 2012, 16,000 SARs are exercised by executives. What amount
of compensation expense should Korsak recognize for the year ended December 31, 2012?
Solution: P 285,000
(P33 P20) 60,000 .75 = P585,000; P585,000 P300,000 = P285,000
10
.
(P1-AVERAGE) Bishop Co. began operations on January 1, 2010. Financial statements for 2010
and 2011 con- tained the following errors:
Dec. 31, 2010
Dec. 31, 2011
Ending inventory
P132,000 too high
P156,000 too low
Depreciation expense
84,000 too high
Insurance expense
60,000 too low
60,000 too high
Prepaid insurance
60,000 too high
In addition, on December 31, 2011 fully depreciated equipment was sold for P28,800, but the sale
was not recorded until 2012. No corrections have been made for any of the errors. Ignore income
tax considerations. The total effect of the errors on the balance of Bishop's retained earnings at
December 31, 2011 is understated by
Solution: P 268,800
P156,000 (u) + P84,000 (u) P60,000 (o) + P60,000 (u) + P28,800 (u) = P268,800 (u)
11
.
(P1-DIFFICULT) You gathered the following November 30 bank reconciliation from the cash records
of the Conrad Company in connection with your audit of the companys financial statements for the
year 2006:
Balance per bank
Deposits in transit
P 560,000
123,200
Outstanding checks
Balance per books
(160,000)
P 523,200
Bank
P692,000
400,000
Books
P740,000
464,800
80,000
1,200
26,800
Based on the above and the result of your audit, answer the following. The outstanding checks as
of December 31, 2006 is
Solution: P88,000
12
.
13
.
(P1-DIFFICULT) Hetfield has a herd of 15 3 year old cattle at January 1, 2008. Two animals were
born during the year, one on April 1, 2008 and one on September 30, 2008. Three animals with
ages of 3, 2.5 and 2 were purchased on July 1, 2008 for P5,000, P4,500 and P4,000, respectively.
One animal was sold on March 1, 2008 for P4,500. Per-unit fair values less cost to sell are as
follows.
3 year old animal at January 1, 2008
Newborn animal at April 1, 2008
P 4,000
1,100
5,000
4,500
4,000
1,200
1,200
1,250
1,350
1,450
4,500
5,000
5,500
6,000
6,200
How much is the increase in fair value less estimated cost to sell due to physical change?
Solution: P 13,900
A (151sold) 3yr/4yr x (6,200 5,500); 1 3yr/3.5 x (6,000 5,500); 1 new/.75 x (1,450 1,200); 1 new/.25 x
(1,250 1,200); 1 2.5/3yr x (5,500 5,000); 1 2/2.5yr x (5,000 4,500)+ 2 newly born 1,100 + 1,200 = 13,900
14
.
(P1-DIFFICULT) Buswang Beach Bank loaned Boracay Company P7,500,000 on January 1, 2004.
The terms of the loan were payment in full on January 1, 2009 plus annual interest payment at
11%. The interest payment was made as scheduled on January 1, 2005. However, due to financial
setbacks, Boracay was unable to make its 2006 interest payment. Buswang Beach considers the
loan impaired and projects the cash flows from the loan as of December 31, 2006. Assume that the
bank accrued the interest at December 31, 2005, but did not continue to accrue interest due to the
impairment of the loan. The projected cash flow are:
Date of cash flow Amount projected as of December 31, 2006
December 31, 2007
December 31, 2008
December 31, 2009
December 31, 2010
500,000
1,000,000
2,000,000
4,000,000
15
.
(P1-DIFFICULT) After a year of operations, an entity is calculating the value in use of one of its
cash-generating unit at the beginning of 2009. Data is shown below.
Year
2009
2010
2011
2012
2013
The appropriate discount rate was determined to be 15%. Projections of future cash flows should
be extended up to 11 years. The long-term growth rates were determined as 3%, -2%, -6%, -15%,
-25% and - 67% from year 2014 up to year 2019. How much is the value in use?
Solution: P 1,360 or P 1,360.97
Compute for the present value of cash flow each year. Use P 304 as the base figure in determining cash
flows for years 2014 to 2019 and compute present value each year. (e.g., cash flow for 2019 = 304 x 1.03 x .
98 x .94 x .85 x .75 x .33). Add the computed present values to arrive at the answer.
TAXATION
1.
(TAX-EASY) The following taxes paid or incurred within the taxable year in connection with the
taxpayers trade or business are not deductible for income tax purposes, except:
a. Philippine income tax
b. Foreign income tax, if taxpayer avails of the Foreign Tax Credit (FTC)
c. Estate tax
d. Documentary stamp tax
2.
(TAX-EASY)) The following are exempt from the imposition of Improperly Accumulated Earnings
Tax (IAET) except:
a. General professional partnerships
b. Insurance companies
c. Branches of a foreign corporation or a resident foreign corporations
d. All of the above
3.
(TAX-EASY) Rentals, charters and other fees derived by a non-resident lessor of aircraft,
machineries and other equipment is subject to what percent of final withholding tax?
a. 4.5%
b. 5%
c. 10%
d. 7.5%
5.
(TAX-EASY) This Act amends the National Internal Revenue Code (NIRC) and is otherwise known
as the Tax Reform Act of 1997
a. R.A. No. 8424
b. R.A. No. 1158
c. R.A. No. 8337
d. R.A. No. 9339
6.
(TAX-AVERAGE) Jay Corporation is registered under the laws of the Virgin Islands. It has extensive
operations in Southeast Asia. In the Philippines, its products are imported and sold at a mark-up by
its exclusive distributor, Roxys Trading, Inc. The BIR compiled a record of all the imports of Roxy
from Jay and imposed a tax on Jays net income derived from its exports to Roxy. Is the BIR
correct?
a. Yes. Jay is a non-resident foreign corporation engaged in trade or business in the Philippines.
b. No. The tax should have been computed on the basis of gross revenues and not net income.
c. No. Jay is a non-resident foreign corporation not engaged in trade or business in the Philippines.
d. Yes. Jay is doing business in the Philippines through its exclusive distributor Roxys Trading, Inc.
7.
9.
10
.
11
.
(TAX-DIFFICULT) Runneth sold her rest house in Tagaytay City to Mycah her new best friend. It
cost her PhP 400,000 when she bought this property a year ago from her ex-best friend AJ. As a
consideration for the sale, Runneth received the following from Mycah:
8.
Year 1:
Cash (down payment)
Fair market value of a diamond ring received
as part of the consideration for the sale
Installments received:
Year 1: Cash
Year 2: Notes Receivable
Year 3: Notes Receivable
Mortgage assumed by Mycah
PhP
100,000
500,000
500,000
500,000
PhP
100,000
300,000
100,000
12
.
300,000
PhP
PhP
100,000
500,000
500,000
500,000
2,000,000
(400,000)
1,600,000
PhP
100,000
300,000
100,000
100,000
PhP
600,000
(TAX-DIFFICULT) The lease dated January 1, 200B provided for construction of improvements at
the cost of the lessee, and the ownership will belong to the lessor at the end of 5-year lease
contract. The construction of improvements which was completed at the end of the 3rd month of the
contract amounted to PhP 240,500. The improvement has an economic life of 8 years and
estimated scrap value of PhP 560. The rent income on improvements for year 1 under each method
is:
Outright
Spread-out
a. PhP 240,500
PhP 19,672
b. PhP 147,620
PhP 22,143
c. PhP 239,940
PhP 14,754
d. PhP 240,500
PhP 15,479
Solution: D
Year 1 Outright method
Year 1 Spread-out method
Value of investment
Less: Accum. depreciation [(PhP 240,500 - PhP 560)/8
yrs] x
4.75 yrs
Book value, end of lease
Divided by remaining years of contract
Annual income from improvement
Multiplied by months in a year
Year 1 spread-out rent income on improvement
Outright
PhP
240,500
Spread-out
PhP240,500.00
142,464.37
PhP 98,035.63
4.75
PhP
20,639
9/12
PhP
15,479
13
.
PhP
500,000
450,000
FMV 600,000
ZV 500,000
300,000
PhP
Plus
Of the Excess
Over
PhP
PhP
100,000
Exempt
100,000
200,000
2%
200,000
500,000
2,000
4%
200,000
500,000
1,000,000
14,000
6%
500,000
1,000,000
3,000,000
44,000
8%
1,000,000
3,000,000
5,000,000
204,000
10%
3,000,000
5,000,000
10,000,000
404,000
12%
5,000,000
1,004,000
15%
10,000,000
10,000,000
100,000
Solution: P26,800
June 1, 2012
Net Gift
Less: Limit
Taxable excess gift
donor's tax rate
Tax on excess gift
Tax on Limit
Tax due and payable on June 1, 2012
PhP
PhP
PhP
PhP
July 3, 2012
Net Gift (490,000 + 450,000)
Less: Limit
Taxable excess gift
donor's tax rate
Tax on excess gift
Tax on Limit
Tax due
Less: previously paid in June 1, 2012
Tax due and payable on July 3, 2012
14
.
PhP
940,000.00
500,000.00
PhP 440,000.00
6%
PhP
26,400.00
14,000.00
PhP
40,400.00
13,600.00
PhP 26,800.00
490,000.00
200,000.00
290,000.00
4%
11,600.00
2,000.00
13,600.00
PhP
5,000,000
3,000,000
450,000
850,000
A piece of land inherited from the decedents father who predeceased him 3 years ago, FMV at
the time of inheritance is PhP 800,000 (no mortgage indebtedness); FMV at the time of present
decedents death, PhP 900,000. This was mortgaged during the marriage for the benefit of the
family for PhP 300,000 which was paid by the decedent before he died.
Car which was received as gift 18 months before the present decedents death, FMV date of
donation, PhP 500,000; FMV date of death, PhP 400,000.
The vanishing deduction was:
Solution: P 435,500
Land
Value to be taken (whichever is lower
between FMV at the time of transfer
and death)
Less: Mortgage paid by the decedent
Initial basis
Deduction form the initial basis (Total
deductions x Initial basis/Gross
Estate)
1,300,000 x 500,000/8,000,000
1,300,000 x 400,000/8,000,000
Basis of vanishing deduction
Level of deduction
Vanishing deduction
TOTAL
15
.
PhP
800,000
PhP
(300,000)
500,000
Car
PhP
PhP
400,000
400,000
(81,250)
PhP
PhP
418,750
(3-4 years)
40%
167,500
PhP
PhP
PhP
(65,000)
335,000
(1-2 years)
80%
268,000
435,500
PhP
PhP
36,000
12,000
24,000
48,000
( 1,200)
PhP
118,800
PhP
34,800
7,800
14,000
56,600
300,000
7%)
VAT payable
Less: Final withholding VAT government (PhP
200,000 x 5%)
Net VAT payable
PhP
62,200
10,000
PhP
52,200
Notes:
1. The sales discount is generally a cash discount that depends on the happening of
future events which is the prompt payment of customers. This sales discount is
not allowed to be deducted for VAT purposes. (Sec. 4.106-9, RR No. 14-2005)
2. The 5% final withholding VAT is deductible from output VAT on sales to the
government.