CPA BOARD

EXAM QUIZZER v.1

Contains 10 random questions on the various subjects covered in
the CPA Board Exams, plus supplementary discussions. Based on
lectures and materials from the CPA Review School of the
Philippines (2016)

questions
FAR
#1

Assuming PFRS 9, if an entitys business model for a debt

instrument is to collect contractual cash flows, wherein
such cash flows are payments of principal and interest, and
the entity also plans to sell the financial instrument in the
near term, what shall be the classification of the
instrument?
a. Financial instrument through amortized cost
b. Financial instrument through fair value at profit or
loss
c. Financial instrument through fair value at other
comprehensive income
d. Investment in debt securities at other
comprehensive income

AUDITING
#2 Who among the following is least likely to uncover fraud in

an engagement?
a. Management
b. External auditor
c. Internal auditor
d. Employee

RFBT
#3 Aguinaldo subscribed Php 1,000,000 worth of San Miguel

Corporation shares, then worth Php 2.00 each on the

market (par = Php 1.00). He has paid enough for 250,000
shares and demands that a certificate for those shares be
issued to him. However, the corporation refuses to issue
Aguinaldo the shares. Who is correct?
a. Aguinaldo is correct. As per corporation law, he
has paid more than 25% of his subscriptions, which
earns him the right to the equivalent shares
b. The corporation is correct. Aguinaldo must first
pay the entire amount of subscription before he is
to be issued any certificate

c.

d.

Aguinaldo is correct. He can, in fact, sue the

corporation for its failure to abide in the
subscription contract that paid shares must
already be issued
The corporation is correct, unless of course the
Board of Directors allows partial issuance of shares

TAXATION
#4 Bin Laden, a resident alien, pays installment on his

purchase of a 5-acre residential house and lot in the

Philippines from a non-trader of real property. The
property is worth Php 5,500,000, with a required initial
payment of Php 1,500,000 (net of VAT) and five annual
equal payments thereafter. Its zonal value is determined to
be Php 6,000,000. How much tax should he pay in the
year of purchase?
a. Php 360,000 capital gains tax + Php 660,000 VAT
b. Php 97,400 capital gains tax on the initial payment
+ Php 660,000 VAT
c. Php 360,000 capital gains tax + Php 194,400 VAT
on the initial payment
d. Php 97,400 capital gains tax on the initial payment
+ Php 194,400 VAT on the initial payment

AFAR
#5 During corporate liquidation, what is the priority item to be

deducted first against free assets to compute the net free

assets of the corporation?
a. Liabilities to employees, e.g. salary
b. Taxes due
c. Administrative expenses
d. Customer deposit

RFBT
#6 Saddam bought a laptop unit in a sale-on-approval term,

the buyer giving him ten days to make the sale absolute.
Seven days later, Saddam became excited with the release
of a new Call of Duty installment, which required 8
gigabytes of RAM. The laptop only has 2 GB built it.
Saddam wants to return the laptop, but the seller refuses.
The day after, the laptop got crushed by accident

a.
b.

c.

d.

Since the laptop was destroyed, Saddam need not

pay the seller
The seller can request partial payment from
Saddam since he used the laptop for seven days as
per the term of the transaction
Saddam must pay the full amount since it is in his
failure to exercise the proper amount of care that
the laptop was destroyed
Saddam cannot be made to pay due to the term of
the transaction and since the product was lost due
to accident

AFAR
ACTUAL OCTOBER 2016 CPA BOARD EXAM QUESTION
#7 What stage in the preparation of the national budget

involves submission of reports and liquidation of expenses

to ensure that the funds were properly spent?
a. Budget accountability
b. Budget preparation
c. Budget execution
d. Budget authorization

MAS
#8 Given the following data, compute for the economic value

added (EVA): Php 200,000 operating income; Php

180,000 after-tax operating income; Php 1,000,000 total
assets; Php 200,000 current liabilities; Php 300,000 other
liabilities; 15% weighted average cost of capital; Php 10,000
residual income; 4 times interest earned; 30% income tax
rate
a. Php 50,000
b. Php 60,000
c. Php 70,000
d. None of the above; insufficient data

FAR
ACTUAL OCTOBER 2016 CPA BOARD EXAM QUESTION
#9 The change in the defined benefit obligation due to

changes in actuarial estimates, under PFRS for SMEs, may

be reported where?
a. Statement of financial position

b.
c.
d.

Profit or loss
Other comprehensive income, same as full PFRS
Either b or c

TAXATION
#10 Determine the correct sentence

a.
b.
c.
d.

Mark spoke on behalf of the Senate President;

compared to Stephen, he was more concise.
Mark spoke in behalf of the Senate President;
compared to Stephen, he was more concise.
Mark spoke in behalf of the Senate President;
compared with Stephen, he was more concise.
Mark spoke on behalf of the Senate President;
compared with Stephen, he was more concise

answers
#1

(c) FINANCIAL INSTRUMENT THROUGH FAIR VALUE AT OTHER

COMPREHENSIVE INCOME (FV@OCI)

If the instrument qualifies under the business model of

collecting contractual cash flows and principal-interest
cash flow, but is not to be sold, it is classified as financial
instrument at amortized cost
If the instrument does not qualify under the business
model, it is considered financial instrument through fair
value at profit or loss

#2

(b) EXTERNAL AUDITOR

External auditors are independent of the entity they are
engaged to audit. In a usual engagement, it is the primary
concern of the auditor to determine the fairness, accuracy
and reliability of financial information as part of their
assurance service. Discovery of fraud is the least concern
of external auditors, but in such case one is encountered
during the course of the audit, it must be reported first to
the proper level of management

#3

(d) THE CORPORATION IS CORRECT, UNLESS OF COURSE THE

BOARD OF DIRECTORS ALLOWS PARTIAL ISSUANCE OF
SHARES TO AGUINALDO

Subscription contracts are indivisible, which means no

shares must be issued to the subscriber unless the entire
subscription price has been paid. This is not an absolute
rule, as the Board may allow partial issuance of shares

#4

(c) PHP 360,000 CAPITAL GAINS TAX + PHP 194,400 VAT ON

THE INITIAL PAYMENT

Transactions involving capital assets, such as the

residential house and lot, are subject to 6% final capital
gains tax, multiplied against the higher between the selling
price or zonal/assessors value. If payments are through
installment, the final tax is likewise paid on installment with
the following formula:
Initial payment + other installments in the same year
DIVIDE: Contract price
MULTIPLY: Full final tax (6,000,000 x .06)
Final tax payable on the year, installment method

Php 1,500,000
5,500,000
0.27
360,000
Php 97,200

However, the installment method is not applicable in this

case since the initial payment for the real property is more
than 25% of the selling price. Thus, the full capital gains tax
must be paid
Since the transaction is within the threshold (Php 3,919,200
sales per transaction for real estate), the purchase is also
subject to VAT. Since payment is through installment, VAT
can also be paid in the same manner. Normally, VAT
payable is computed by multiplying 12% to the installment
payment. However, since the base of VAT is the higher of
the selling price or the zonal/assessors value, computation
of the VAT due on the payment is as follows:
Actual collection, net of VAT
DIVIDE: Contract price, net of VAT
MULTIPLY: Zonal / assessors value
MULTIPLY: VAT rate
Final tax payable on the year, installment method

Php 1,500,000
5,500,000
0.27
6,000,000
1,620,000
12%
Php 194,400

#5

(a) LIABILITIES TO EMPLOYEES, e.g. SALARY

The aforementioned choices are referred to as liabilities
with priority, deducted against the free assets of the
liquidating corporation

#6

(d) SADDAM CANNOT BE MADE TO PAY DUE TO THE TERM OF

THE TRANSACTION AND SINCE THE PRODUCT WAS LOST DUE
TO ACCIDENT

In a sale on approval, ownership and thus the risks over the

product remain with the vendor. There was no perfected
sale yet. The seller shouldve accepted the laptop when
Saddam returns it to him; under the term, return of the
product depends on the suitability/quality of the good,
which the laptop did not meet

#7

(a) BUDGET ACCOUNTABILITY

#8

(b) PHP 60,000

Economic value added (EVA) is considered to be the true
net income for performance evaluation purposes, a
measure of the benefits obtained from the use of the
entitys resources. It is computed as follows:
After-tax operating income
DEDUCT:
Weighted average cost of capital
15%
MULTIPLY: (Total assets current liabilities) 800,000
Economic value added

Php 180,000
120,000
Php 60,000

#9

(d) EITHER B OR C
Change in the defined benefit obligation due to actuarial
estimate changes result to a remeasurement, which are all
reported in other comprehensive income in full PFRS. In
PFRS for SMEs, however, choice is given as to where
actuarial gains and losses may be reported

#10

(d) MARK SPOKE ON BEHALF OF THE SENATE PRESIDENT:

COMPARED WITH STEPHEN, HE WAS MORE CONCISE

In behalf is used to mean for the benefit of another; on

behalf is used when something serves in representation of
another. The semicolon (;) can be used to separate two
sentences of similar thought. Also, compared to is used to
imply resemblance, while compared with is to pinpoint
differences of things of the same type