Excel_Professional Services Inc.

Management Firm of Professional Review and Training Center (PRTC)

Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

OPEN First Preboard Examination on Financial Accounting and Reporting

February 22, 2022
Suggested answers/solutions by OCAMPO/OCAMPO

Question No. 1 - C
Question No. 2 - B
Question No. 3 - D
Question No. 4 - B
Unadjusted inventory 2,348,900
Add (deduct) adjustments:
Item letter b 134,200
Item letter c -
Item letter d -
Item letter e 85,400
Item letter f (104,380)
Item letter g (105,200)
Item letter h 15,000
Adjusted inventory 2,373,920

Question No. 5 - C
Unadjusted inventory 2,580,000
Item a -
Item b -
Item c 20,000
Item d 41,000
Item e 43,000
Item f -
Adjusted inventory 2,684,000

Question No. 6 - A
Cost NRV LCN Units Total
Product A 14 12 12 2,000 24,000
Product B 16 20 16 5,000 80,000
104,000
NRV of Product A (P17 - P5)

Question No. 7 - C
Raw materials, 1/1 42,500
Purchases 96,000
Raw materials available for use 138,500
Less raw materials, 6/30 52,000
Raw materials used 86,500
Direct labor 130,000
Factory overhead (P130,000 x .6) 78,000
Total manufacturing cost 294,500
Work-in-process, 1/1 115,000
Total cost placed in process 409,500
Less work-in-process, 6/30 (squeeze) 135,020
Cost of goods manufactured 274,480
Finished goods, 1/1 120,000
Total goods available for sale 394,480
Less finished goods, 6/30 112,000
Cost of goods sold (P428,000 x .66) 282,480

Page 1 of 7 [Link] FAR.1stPB5.22

Question No. 8 - B
Cost Retail
Beginning inventory 440,000 800,000
Purchases 4,500,000 7,400,000
Purchase returns (240,000) (350,000)
Freight on purchases 100,000
Additional mark up 250,000
Mark up cancellations (100,000)
Mark down (600,000)
Mark down cancellations 100,000
Goods available for sale 4,800,000 7,500,000

Cost ratio (P4,800,000/P7,500,000) 0.64

Goods available for sale (GAS) at retail 7,500,000

Less net decrease in GAS at retail:
Sales 5,300,000
Sales returns (400,000)
Employee discounts 200,000
Theft and other losses 100,000 5,200,000
Ending inventory at retail 2,300,000
x Cost ratio 0.64
Ending inventory at cost 1,472,000

Question No. 9 - D
Question No. 10 - B
Question No. 11 - B
Fair value, based on level 1 input (P5,300 - P300) 5,000
Estimated costs to sell (Commissions) (500)
Carrying amount of biological assets 4,500

Question No. 12 - B
Jounal entry to reclassify the property:
Investment property 7,000,000
Allowance for inventory writedown 2,000,000
Loss (P/L) 1,000,000
Inventory 10,000,000

Question No. 13 - A
Cost subject to depletion (P20M - P4M) 16,000,000
Divide by total estimated reserves in 2021 5,000,000
Depletion rate in 2021 3.20
Number of tons mined in 2021 500,000
Depletion for 2021 1,600,000

Original cost subject to depletion 16,000,000

Less depletion in 2021 1,600,000
Remaining cost to deplete, 1/1/22 14,400,000
Remaining tons of ore, 1/1/22 (4,500,000+1,500,000) 6,000,000
Depletion rate in 2022 2.40
Number of tons mined in 2022 1,500,000
Depletion for 2022 3,600,000

Question No. 14 - C
Cost/Depreciable amount 2,800,000
Accumulated depreciation, beg. of 3rd year (200,000 x P5.6) (1,120,000)
CA/Remaining depreciable amount beg. of 3rd year 1,680,000
Depreciation - 3rd year (P1,680,000/8) (210,000)
CA/Remaining depreciable amount beg. of 4th year 1,470,000
/Remaining remaining reserves beg. of 4th year 300,000
Depreciation rate - 4th year 4.90

Depreciation - 4th year (100,000 x P4.9) 490,000

Question No. 15 - C

Page 2 of 7 [Link] FAR.1stPB5.22

 List price of the equipment 14,000
Cash discount (deduct whether taken or not) (200)
Freight 250
Installation costs 430
Testing costs 295
Cost of new equipment 14,775

Question No. 16 - B
Actual invoice price 58,000
Concrete platform 4,000
Testing 7,000
Total cost 69,000

Depreciation - 2022:
(P69,000/10 x 4/12) 2,300

Question No. 17 - A
Cost 81,000
Residual value (6,000)
Depreciable amount 75,000
/ Total estimated output 24,000
Depreciation rate 3.125
x Output - 2022 7,000 units
Depreciation - 2022 21,875

Note: Output method is the most appropriate based on the information given.

Question No. 18 - A
Depreciation - 2022 (3rd year)
[(P20,000 - P2,000) x 2/10] 3,600

Question No. 19 - C
Depreciation - 2022 (4th year)
(P500,000 x .75 x .75 x .75 x .25) 52,734

Question No. 20 - A
Question No. 21 - B
Machine A Machine B
Fair value 84,000 38,000
Carrying amount, 12/31/22:
Cost 100,000 60,000
Accumulated depreciation (20,000) (20,000)
80,000 40,000
Increase (Decrease) 4,000 (2,000)
To be recognized in OCI Profit or loss

Question No. 22 - B
Profit or loss (2,000)
Other comprehensive income (OCI) 4,000
Comprehensive income 2,000

Question No. 23 - B
Depreciation [(P5M/20) x 6/12] (125,000)
FV adjustment, 7/1/22 (Revaluation loss)
FV, 7/1/22 4,800,000
CA, 7/1/22 (P5M - P.125M) 4,875,000 (75,000)
FV adjustment, 12/31/22
FV, 12/31/22 4,950,000
FV, 7/1/22 4,800,000 150,000
(50,000)

Question No. 24 - A
Cost to acquire patents 100,000
Cost of training and advertising - expense when incurred

Question No. 25 - C

Page 3 of 7 [Link] FAR.1stPB5.22

 R & D expense (Include all except equipment) 11,000,000

Question No. 26 - D
Patent amortization - 2022 (P330,000/10) 33,000

Question No. 27 - C
12/31/21 12/31/22
CA before amortization 940,000 705,000
Amortization (P940,000/4) (235,000) (235,000)
CA after amortization 705,000 470,000
Recoverable amount (Higher of FV-COD and VIU)
720,000 445,000
Impairment loss - 25,000
Amortization 235,000
Impairment 25,000
Total expense in 2022 profit or loss 260,000

Question No. 28 - A
Purchase price 35,000,000
Less fair value of net assets:
Unadjusted 15,000,000
Patent 10,000,000
Receivable 2,000,000 27,000,000
Goodwill 8,000,000

Question No. 29 - D
Question No. 30 - B
Cost 650,000
Acc. depreciation, 12/31/22 [(P650,000 - P50,000) x 5/12] (250,000)
Carrying amount, 12/31/22 400,000
Recoverable amount - VIU [(P1M - P825,000)/5 x 3.7908] 132,678
Impairment loss 267,322

Question No. 31 - B
Fair value, 12/31/22 1,650,000
CA, 12/31/22 without impairment [P2,000,000 - (P80,000 x 12)] 1,040,000
Revaluation surplus 610,000

Alternative computation:
Fair value, 12/31/22 1,650,000
Less CA, 12/31/22 with impairment 836,875
Revaluation increase 813,125
Less reversal of impairment 203,125
Revaluation surplus 610,000

Useful life (P2,000,000/P80,000) 25

CA, 12/31/19 [P2,000,000 - (P80,000 x 9)] 1,280,000

Impairment loss 250,000
RA 1,030,000

CA, 12/31/19 after impairment 1,030,000

Less depreciation - 2020 to 2022 [(P1,030,000/16) x 3] 193,125
CA, 12/31/22 836,875

CA, 12/31/22 without impairment [P2,000,000 - (P80,000 x 12)] 1,040,000

Less CA, 12/31/22 with impairment 836,875
Reversal of impairment loss in P/L 203,125

Question No. 32 - A
Balance of revaluation reserve before revaluation 20,000
Revaluation increase on 6/30/22 (P330,000 - P290,000) 40,000
Balance of revaluation reserve after revaluation 60,000

Question No. 33 - B
Depreciation - 2022 [(P135,000 - P13,500)/5] 24,300
Page 4 of 7 [Link] FAR.1stPB5.22
Question No. 34 - B
Interest Allied Bank loan (P800,000 x .06) 48,000
Interest BDO Bank loan (P1,000,000 x .066) 66,000
Interest Metro Bank loan (P3,000,000 x .07) 210,000
Total 324,000
Total general borrowings 4,800,000
Capitalization rate 6.75%
Capitalized interest (P1,800,000 x .0675 x 8/12) 81,000

Question No. 35 - A
Question No. 36 - B
Question No. 37 - A
Include all items.

Question No. 38 - D
Cash in bank (P15,000,000 - P500,000 + P300,000) 14,800,000
Petty cash fund 50,000
Time deposit 5,000,000
Saving deposit 2,000,000
Cash and cash equivalents 21,850,000

Question No. 39 - D
Cash in bank, 1/1 70,000
Set up of petty cash fund (2,000)
Collections of accounts receivable 290,000
Collections of subscriptions receivable 50,000
Payment for delivery equipment (50,000)
Payments of accounts payable (280,000)
Proceeds from bank loan 80,000
Payment of bank loan (35,000)
Payments of expenses (P90,000 - P5,000 - P1,500) (83,500)
Cash in bank, 12/31 39,500

Question No. 40 - D
Balance per bank 169,263
Deposits in transit 18,200
Outstanding checks (P59,435 - P5,000) (54,435)
NSF checks not redeposited (P3,435 - P1,835) 1,600
Erroneous bank debit 2,200
CM - Note collected by bank net of BSC (P7,548 - P18) (7,530)
Balance per books 129,298

Question No. 41 - B
Outstanding checks, 6/1 (Work back from 6/30) 211,160
Checks issued per books - June (P396,040 - P400) 395,640
Checks paid per bank - June (P344,200 - P600 - P2,000) (341,600)
Outstanding checks, 6/30 265,200

Question No. 42 - C
Accounts receivable, 1/1/22 209,000
Credit sales for 2022 1,500,000
Collections during 2022 (1,380,200)
Accounts written off - 2022 (31,000)
Accounts receivable, 12/31/22 297,800

Page 5 of 7 [Link] FAR.1stPB5.22

Question no. 43 - B
Allowance for doubtful accounts, 1/1/22 7,600
Provision for doubtful accounts - 2020 (P1,500,000 x .02) 30,000
Accounts written off - 2022 (31,000)
Recovery of accounts written off - 2022 4,200
Allowance for doubtful accounts, 12/31/22 10,800

Year Credit sales AR writen-off Recoveries Net

2019 1,110,000 26,000 2,150 23,850
2020 1,225,000 29,500 3,750 25,750
2021 1,465,000 30,000 3,600 26,400
3,800,000 85,500 9,500 76,000

Net accounts written off (2019 to 2021) 76,000

Divide by credit sales (2019 to 2021) 3,800,000
Percentage of uncollectible accounts to credit sales 0.02

Question no. 44 - C
PVF at 8%,
Cash flows 5 periods CA, 12/31/22
Principal 500,000 0.6806 340,300
Interest 20,000 3.9927 79,854
420,154

Question no. 45 - C
Date Cash flows Periods PVF at 9% PV, 12/31/22
12/31/23 - 1 0.9174 -
12/31/24 - 2 0.8417 -
12/31/25 18,000 3 0.7722 13,900
12/31/26 18,000 4 0.7084 12,751
12/31/27 218,000 5 0.6499 141,678
168,329

PV of contractual cash flows (gross CA) 200,000

PV of expected cash flows (168,329)
Impairment loss 31,671

Question no. 46 - D
Loan Stage Amount PV of ECF Credit loss Probability Allowance
1 3 600,000 360,000 240,000 100% 240,000
2 1 500,000 450,000 50,000 2% 1,000
3 2 400,000 320,000 80,000 5% 4,000
4 1 300,000 270,000 30,000 2% 600
5 2 200,000 160,000 40,000 5% 2,000
6 3 100,000 60,000 40,000 100% 40,000
287,600

Question no. 47 - B
Reduced principal 100,000
Interest (P200,000 x .08 x 5) 80,000
Expected cash flows 180,000
x PVF at 8%, 4 periods 0.7350
Carrying amount, 12/31/22 132,300
x interest rate 0.08
Interest income - 2023 10,584

Question no. 48 - B
Journal entry:
Cash 600,000
Financial liability 600,000
This is a transfer that does not qualify for derecognition since the entity retained substantially all
risks and rewards of the transferred asset.

Question no. 49 - C

Page 6 of 7 [Link] FAR.1stPB5.22

 PV of Principal (P1,000,000 x 0.6806) 680,600
PV of Interest (P1,000,000 x .1 x 3.9927) 399,270
PV, 1/1/22 1,079,870
Less premium amortization, 1/1 - 4/1
Nominal interest (P1M x .1 x 3/12) 25,000
Effective interest (P1,079,870 x .08 x 3/12) (21,597) 3,403
Purchase price (PV, 4/1/22) 1,076,467
Accrued interest 25,000
Total amount paid 1,101,467

Question no. 50 - A
Interest income - 2022 (P1,079,870 x .08 x 9/12) 64,792

Question no. 51 - D
Question no. 52 - C
Fair value, 12/31/22 1,240,000
Less carrying amount before FV adjustment (previous FV) 1,220,000
Fair value adjustment gain (loss) in profit or loss 20,000

Question no. 53 - B
Cost 18,800,000
Share of profit (P7,040,000 x .25) 1,760,000
Dividends received (750,000 x P2) (1,500,000)
Carrying amount, 12/31/22 19,060,000

Question no. 54 - C
Question no. 55 - D
Question no. 56 - A
Question no. 57 - C
Question no. 58 - A
Question no. 59 - C
Unadjusted accounts payable 5,000,000
Add (deduct) adjustments:
Goods purchased FOB destination, received 12/24/21 400,000
Goods purchased FOB shipping point, shipped 12/28/21 650,000
Adjusted accounts payable 6,050,000

Question no. 60 - C
Interest expense - 2022 (P64,000 x 3.6048 x .12 x 6/12) 13,842

Question no. 61 - A
Carrying amount, 12/31/21 10,300,000
Premium amortization, 1/1 - 9/1/22 (P12,000 x 8) (96,000)
Carrying amount, 9/1/22 10,204,000
Retirement price #########
Gain on bond retirement 204,000

Computation of monthly amortization:

Carrying amount, 12/1/19 (P10.8M - P.2M) 10,600,000
Carrying amount, 12/31/21 #########
Amortization of premium 300,000
Divide by the number of months (12/1/19 to 12/31/21) 25
12,000

Question no. 62 - B
Liability, 12/31/22 (P1,000,000 x .25 x .7938) 198,450

Question no. 63 -C
Question no. 64 -A
Question no. 65 -B
Question no. 66 -D
Question no. 67 -A
Question no. 68 -B
Question no. 69 -C
Question no. 70 -D

Page 7 of 7 [Link] FAR.1stPB5.22

Professional Review and Training Center
Management Advisory Services
First Open Preboard Examinations - May 2022 Batch
Suggested Solutions

MC No. 4
The requirement is strongest DIRECT relationship, hence, the answer should be positive.

MC No. 10
Assumed
figures
Sales 160% 160.00 [160*0.90] 144.00 100%
Less: Variable costs 100% 100.00 100.00 69.4%
Contribution margin 60% 60.00 44.00 30.6%

MC No. 11
Good Bad Ugly
Selling price 250 350 500
Less: Variable costs per unit 100 150 250
Contribution margin per unit 150 200 250

Weighted average unit contribution margin = [(150*0.30) + (200*0.50) + (250*0.20)]

Weighted average unit contribution margin = 195

Total fixed costs 3,315,000

Divide by: WAUCM 195
Total break-even point 17,000

MC No. 12
Current Break-even
Sales 100 75
Less: Variable costs
Contribution margin
Less: Fixed costs
Income before tax [3.6/0.60] 6 -

Net income [100*3.6%] 3.6

Change in income before tax [6-0] 6

Divide by: Change in sales [100-75] 25
Contribution margin ratio 24%

Note: The difference in net income before tax is also the difference in contribution margin there being
no change in the level of fixed costs.

MC No. 17
Normal monthly capacity 5,000
* Fixed overhead per hour [16*0.70] 11.2
Budgeted monthly fixed overhead 56,000
* 12
Budgeted annual fixed overhead 672,000

MC No. 18
Budgeted direct labor costs [50*500*1.2] 30,000
Divide by: Budgeted hours [50*40] 2,000
Budgeted direct labor costs per hour 15
* No. of hours per unit 2
Standard direct labor costs per unit 30

MC No. 19
Hall rental 3,000
Bingo caller's fee 200
Bingo prize 10,000
Total fixed costs per session 13,200

Total variable costs in one session (Supplies) [1,000*3] 3,000

MC No. 20

The variable costs on a per unit basis is constant while the total increases(decreases) as output
increases(decreases). It is to be noted that the cost driver in this case is the number of sessions. If
we add one more session, the rental, the caller's fee and the prize will remain the same per session
but in total it will increase. Thus, these three will behave more like of a variable cost. The costs of
supplies in every session will change because it will always be dependent on the number of players
in every session.

MC No. 21
Hall rental 3,000
Bingo caller's fee 200
Bingo prize 10,000

[Link]
Costs of supplies [1,000*3] 3,000
Average costs per session 16,200

MC No. 22
Hall rental per day 3,000
Bingo caller's fee [200*2] 400
Bingo prize [10,000*2] 20,000
Costs of supplies [(1,000*3)*2] 6,000
Total 29,400
Divide by: Number of sessions 2
Average cost per session 14,700

MC No. 24
Current profit [15,000*(70-40)]-540,000 (90,000) Year 1
Expected profit [20,000*(68-40)]-540,000 20,000 Year 2
Expected profit [25,000*(66-40)]-540,000 110,000 Year 3
Expected profit [30,000*(64-40)]-540,000 180,000 Year 4
Expected profit [35,000*(62-40)]-540,000 230,000 Year 5
Expected profit [40,000*(60-40)]-540,000 260,000 Year 6
Expected profit [45,000*(58-40)]-540,000 270,000 Year 7
Expected profit [50,000*(56-40)]-540,000 260,000 Year 8
Expected profit [55,000*(54-40)]-540,000 230,000 Year 9

This will require a trial and error approach to figure out the highest possible profit based on the
given conditions. If you may notice the computation above, the highest profit that the company may
generate is P270,000 and that will be in year 7. After that point, the profit began to decline.

MC No. 25
Budgeted monthly indirect labor costs [144,000/12] 12,000
Divide by: Budgeted monthly production 5,000
Budgeted indirect labor cost per unit 2.4
*Units produced 4,500
Flexible budget for indirect labor cost 10,800

Actual indirect labor cost 10,100

Less: Flexible budget for indirect labor cost 10,800
Flexible budget variance for indirect labor cost (700) favorable

MC No. 26
Number of working minutes per day [7*60] 420
Divide by: Number of minutes to produce one batch 42
Number of batches produced per day 10

Idle minutes in one day 60

Divide by: Number of batches produced per day 10
Idle minutes absorbed by every batch 6

Standard minutes to produce one batch [42+6] 48

* No. of batches attempted 6
Total minutes 288
Divide by: No. of acceptable batches produced 5
Standard minutes to produce one acceptable batch 57.6
Divide by: No. of minutes in an hour 60
Standard hour to produce one acceptable batch 0.96

MC No. 27
No. of yards in the finished product 2
Divide by: 80%
Total yards consumed for every finished unit 2.5
* Standard direct materials cost per yard 4.5
Standard direct materials cost per unit 11.25

MC No. 28
Hypothetical assumption: The full capacity is 1,000 hours

Using the high-low method

Budgeted costs at highest level 37,600
Budgeted costs at lowest level 28,000
Change in total variable costs 9,600
Divide by: Change in activity
Highest level of activity [1,000*80%] 800
Less: Lowest level of activity [1,000*50%] 500 300
Budgeted variable costs per hour 32

At highest level of activity

Variable costs [800*32] 25,600
Fixed costs 12,000
Total costs 37,600

[Link]
At 85% of capacity
Variable costs [(1,000*85%)*32] 27,200
Fixed costs 12,000
Total costs 39,200

MC No. 33

Generally, we compute our variances for inventoriable costs. It is to be emphasized that under
variable costing, fixed overhead is not treated as inventoriable and therefore expensed in full. Thus,
there will be no volume variance in variable costing because volume variance is related to fixed
overhead which is not inventoriable.

MC No. 34
Absorption costing net income 80,000
FOH in the increase in inventory (5,500)
Variable costing net income 74,500

FOH in the increase in inventory 5,500

Divide by: FOH per unit 5
Increase in inventory 1,100

Inventory
Beginning - 20,400 Unit sales
Production 21,500
Ending 1,100

MC No. 35
Company X Company Y Company Z
Sales [10,000*10] 100,000 100,000 100,000
Less: Variable costs 40,000 40,000 40,000
Contribution margin 60,000 60,000 60,000
Less: Fixed costs 40,000 40,000 40,000
Net income 20,000 20,000 20,000

MC No. 36
AP and LTD, CS and
Total assets Accruals NP RE
Beginning of year 1 90M 25M 30M 35M
Profit 5.5M
Less: Dividend 1.65M
Additional financing needed 2.65M
End of year 1 99M 27.5M 30M 41.5M
[90M*1.1] [25M*1.1]

Profit [(100M*1.1)*5%] 5.5M

Dividend [5.5M*30%] 1.65M

MC No. 37
Financing required for the addition of fixed assets [(600T-500T)*0.38] 38,000
Less: Financing raised internally through retention of profit
Profit [600,000*20%] 120,000
*Retention ratio 60% 72,000
Additional EXTERNAL financing -

There is no need for additional EXTERNAL financing because the fund retained in the company is
more than sufficient to cater the need for fixed assets.

MC No. 38
Uncollected receivable from the beginning balance [35,000*10%] 3,500
Uncollected portion of the current year sales [160,000*30%] 48,000
Accounts receivable balance, end of period 51,500

MC No. 39
Net loss (120,000)
Non cash expenses
Depreciation expense 42,000
Provision for estimated warranty liability 12,000 54,000
Changes in current assets
Decrease in accounts receivable 72,000
Changes in current liability
Increase in accounts payable 48,000
Change in cash during August 54,000

MC No. 40
Budgeted sales in units 150,000
Budgeted ending inventory 20,000
Total inventory needed 170,000
Less: Beginning inventory -

[Link]
Budgeted production 170,000
*Budgeted variable manufacturing costs per unit 50
Budgeted total variable manufacturing costs 8,500,000
Multiply by: 70%
Budgeted cash payments for variable manufacturing costs 5,950,000
Budgeted cash payments for fixed manufacturing costs
[120,000*40%] 48,000
Budgeted cash payments for manufacturing costs 5,998,000

MC No. 41
Sales 100% 937,500
Less: Costs of goods sold 75% 703,125
Gross profit 25% 234,375

Inventory
Beginning - 703,125 Costs of goods sold
Purchases 778,125
Ending 75,000

Accounts payable
Payments 808,125 30,000 Beginning
778,125 Purchases
- Ending

MC No. 42
Per Unit Total
Sales 10 1,000,000
Less: Costs of goods sold 6 600,000
Gross profit 4 400,000
Less: Operating expenses 240,000
Net income 160,000

Variable operating expenses/unit [(240,000-40,000)/100,000] 2

Sales [(100,000*95%)*(10*1.10)] 1,045,000

Less: Costs of goods sold [62%] 647,900
Gross profit 397,100
Less: Operating expenses {[(100,000*95%)*2]+40,000} 230,000
Net income 167,100

MC No. 43
Collections in October from cash sales [200,000/2] 100,000
Collections in October from credit sales in
September [(400,000/2)*70%] 140,000
August [(300,000/2)*20%] 30,000 170,000
Total collections in October 270,000
*Percentage of commission 5%
Sales commission paid in October 13,500

MC No. 49
Price from outside supplier 36
Overall cost of the company 22
Net increase in price from the eyes of the overall company 14
*No. of units 10,000
Net decrease in profit as a result of increase in the cost 140,000

MC No. 50
Additional contribution margin [10,000*(7-4)] 30,000
Less: Additional fixed costs 10,000
Additional operating income 20,000
Less: Additional required return on assets [40,000*0.15] 6,000
Additional residual income 14,000
Divide by: Contribution margin/unit on regular sales [10-4] 6
No. of units to forego on regular and still maintaining the RI 2,333

MC No. 51
Division A Division B Total
Contribution margin 27,000 60,000 87,000
Less: Fixed costs 25,000 37,000 62,000
Segment margin 2,000 23,000 25,000
Less: Common fixed costs 31,000
Net income (6,000)

Total fixed costs [62,000+31,000] 93,000

MC No. 52
Variable selling costs [100*40%] 40
Forgone profit (opportunity costs) 60
Minimum price 100

[Link]
MC No. 53
Existing With automation
Fixed costs 775,000 892,500
Divide by: Contribution margin per unit 15 17
Break-even point in units 51,667 52,500

Increase in break-even point [(52,500-51,667)/51,667] 0.016

The company should not make the shift because by doing so, the break-even point will even
increase by 1%.

MC No. 54
Selling price on the special order 17
Less: Variable costs of goods sold per unit[(320,000-80,000)/(400,000/20)] 12
Contribution margin per unit on the special order 5
*No. of units 2,000
Additional profit if special order is accepted 10,000

MC No. 55
Contribution margin from special order [400*(0.8-0.4)] 160
Divide by: Contribution margin per unit on regular sales [1-0.40] 0.6
Number of units that can be foregone on regular sales 267

MC No. 56
Target profit per unit on special order [(15,000+10,000)/5,000] 5
Variable costs per unit on special order
Direct materials [6-1.50] 4.5
Direct labor 10
Variable overhead 3
Variable selling expenses [2-1] 1 18.5
Target selling price on special order 23.5

MC No. 57
Total savings in operating costs [(5,000-2,500)*4] 10,000
Less: Net investment in the machine
Acquisition costs 8,500
Less: Salvage value of the old machine 4,200 4,300
Advantage or disadvantage of replacement 5,700

MC No. 61
Current liabilities 120,000
* Difference in current ratio and acid-test ratio [2-1.5] 0.5
Inventory 60,000
*Inventory turnover 8
Costs of goods sold 480,000
Divide by: Costs of goods sold ratio [100%-40%] 60%
Sales 800,000

MC No. 64
Costs of goods sold 4,380,000
Divide by: Average inventory [(780,000+960,000)/2] 870,000
Inventory turnover 5.03

No. of days in a year 360

Divide by: Inventory turnover 5.03
Days in inventory 71.51

Net credit sales 6,205,000

Divide by: Average receivable [(320,000+350,000)/2] 335,000
Receivable turnover 18.52

No. of days in a year 360

Divide by: Receivable turnover 18.52
Days in receivable 19.44

Days in inventory 71.51

Days in receivable 19.44
Operating cycle 90.95

MC No. 66
PV of Principal [1,000*0.3971] 397
PV of Interest [(1,000*9%)*7.5361] 678
Market price of the bonds 1,075

MC No. 68
Purchase and installation of the new equipment 12,000
Sales price of the replaced equipment (4,000)
Income tax expense on the gain 400

[Link]
Investment in working capital
Increase in inventory 2,000
Increase in accounts payable 1,000 1,000
Net investment 9,400

Sales price of the replaced equipment 4,000

Less: Book value of replaced equipment 3,000
Gain 1,000
*Tax rate 40%
Income tax expense on the gain 400

MC No. 70
Costs of prediction error [(500-300)*0.60] 120

[Link]
 Excel Professional Services, Inc.
Management Firm of Professional Review and Training Center (PRTC)
(LUZON) Manila 87339344 * Calamba City, Laguna * Dasmariñas City, Cavite * Lipa City,
Batangas (0917) 8852769 * (VISAYAS) Bacolod City (034) 4346214 * Cebu City (032)
2537900 loc. 218 (MINDANAO) Cagayan De Oro (0917) 7081465 * Davao City (082) 2250049

TAXATION

C. NARANJO/ A. SIAPIAN/ V. GUDANI

MAY 2022

1st Pre-Board Examinations

Use the tax tables if necessary:

REVISED WITHHOLDING TAX TABLE FOR COMPENSATION

DAILY 1 2 3 4 5 6
Compensation 685 and 685-1,095 1,096-2,191 2,192-5,478 5,479-21,917 21,918 and
Range below above
Prescribed 0 0 82.19 356.16 1,342.47 6,602.74
Withholding Tax + 20% over + 25% over + 30% over + 32% over + 35% over
685 1,096 2,192 5,479 21,918
WEEKLY 1 2 3 4 5 6
Compensation 4,808 and 4,808-7691 7,692- 15,385- 38-462- 153,846 and
Range below 15,384 38,461 153,845 above
Prescribed 0 0 576.92 2,500 9,423.08 46,346.15
Withholding Tax + 20% over + 25% over +30% over + 32% over + 35% over
4,808 7,692 15,385 38,462 153,846
SEMI-MONTHLY 1 2 3 4 5 6
Compensation 10,417 and 10,417- 16,667- 33,333- 83,333- 333,333 and
Range below 16,666 33,332 83,332 333,332 above
Prescribed 0 0 1,250 5,416.67 20,416.67 100,416.67
Withholding Tax + 20% over + 25% over + 30% over + 32% over + 35% over
10,417 16,667 33,333 83,333 333,333
MONTHLY 1 2 3 4 5 6
Compensation 20,833 and 20,833- 33,333- 66,667- 166,667- 666,667 and
Range below 33,332 66,666 166,666 666,666 above
Prescribed 0 0 2,500 10,833.33 40,833.33 200,833.33
Withholding Tax + 20% over + 25% over + 30% over + 32% over + 35% over
20,833 33,333 66,667 166,667 666,667

SCHEDULE OF EXPANDED WITHHOLDING TAX (EWT)

Income Payment EWT Income Payment EWT
Professional/Management/Consultancy fees Gross receipts 3M or Purchase of goods or properties by Top 1% - goods
(Individual) below - 5% Withholding Agents (TWA) - 2% - service
Gross receipts over 3M or
VAT-reg – 10%
Professional/Management/Consultancy fees Gross receipts 720,000 or Partners in general professional 720,000 or less -
(Non-Individual) below - 10% partnerships (drawings, advances, 10%
Gross receipts over sharings, allowances, etc.) Above 720,000 –
720,000 – 15% 15%
Contractors/subcontractors (security, janitorial, 2% Commission (if not employee) 10%
etc.)
Director’s fees (if not employee) 10% or 15% (720,000 Income distributed to beneficiaries of 15%
threshold) estates/trusts
Rental 5%

GRADUATED TAX TABLE UNDER TRAIN LAW (January 1, 2018 to December 31, 2022)
Over But not over The tax shall be Plus Of excess over
250,000 0 0 -
P 250,000 400,000 0 20% P 250,000
400,000 800,000 30,000 25% 400,000
 800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 2,410,000 35% 8,000,000

1. The Congress of the Philippines enacted a law imposing 5% tax on a specific transaction. The tax law
may be considered valid because:
a. It is for unity
b. It is for public purpose
c. It is equitable
d. It is generally payable in money
Explanation: Tax laws should be based on taxpayer’s ability to pay

2. The assessment of BIR against Nicanor became final and executory. The BIR conducted summary
proceedings to collect the delinquent taxes. The BIR determined that Nicanor had real properties hence
the same were levied. The BIR’s action is in consonance with:
a. Police Power
b. Power of Eminent Domain
c. Power of Taxation
d. Power of Unity
Explanation: Collection of tax is part of the State’s exercise of power of taxation

3. Which is FALSE in the application of the principle of Fiscal Adequacy in case of deficit?
I. The government may lend money
II. The government may impose new taxes
III. The government may sell state properties
IV. The government may suspend capital expenditures
a. I
b. II
c. III
d. IV
Explanation: The government needs to borrow money, not lend.

4. During audit, the BIR discovered that ABC Corp. does not keep books of accounts. ABC Corp. in its SEC
and BIR registration, it indicated that its accounting period is fiscal year. Which is TRUE?
a. The BIR needs to follow taxpayer’s registered taxable year
b. The BIR can compel the taxpayer to change its taxable period
c. The BIR can issue an assessment using the calendar year
d. The BIR, in issuing an assessment, can only consider the fiscal year period being applied by ABC
Corp.
Explanation: If a taxpayer does not keep books of accounts, the taxable year is calendar year

5. The BIR is under the direct supervision of:

a. The Office of the President
b. The Department of Trade and Industry
c. The Department of Finance
d. The Department of Interior and Local Government
Explanation: Direct provision of Tax Code

6. The following are powers of the Commissioner, except:

I. To change venue of filing of returns
II. To extend period of filing of returns
III. To compel taxpayers to appear for its failure to provide requested documents
IV. To decide protested assessments
a. II
b. I
c. III
d. IV
Explanation: Extension of period are provided in Revenue Regulations which are issued by the Secretary of
Finance

7. S1: Inday, a model, is a BIR-registered professional. In 2021, she ventured into vlogging where she earned
Php 1,000,000 on top of her modelling income of Php 1,000,000.00. In 2021, Inday is classified as a Mixed
Income Earner.
S2: Nicanor is unemployed. He tried moto-vlogging as a hobby. He was able to monetize Php 1,000 based
on the views he was able to generate on his YuTube Channel. Nicanor is required to register as a
professional, issue official receipts and keep books of accounts.
a. Only S1 is true
b. Only S2 is true
c. Both are true
d. Both are false
Explanation: S1: Inday is a professional. S2: Nicanor is a professional engaged in the practice of his profession

8. ABC Corp. a PAGCOR-licensee to operate offline gaming in the Philippines employs aliens. The following
are the terms of employment of its Chinese employees:
Name Position Period of Amount of Salary
employment
Wan President 1 year Php 1,000,000.00
Ton Consultant 6 months Php 500,000.00
Sio Dealer 3 months Php 200,000.00
Mai Interpreter 1 month Php 100,000.00

Which is TRUE?
a. Wan is subject to withholding tax on compensation
b. All are subject to 25% final tax
c. Ton is subject to expanded withholding tax
d. Sio and Mai are exempted from taxation because their income is below Php 250,000
Explanation: All are subject to 25% final tax under RR 20-2021

9. Which is FALSE?
I. Nicanor, an employee, is not qualified to use 8% preferential taxation.
II. Nicanor, a sari-sari store owner, is allowed to use commuted tax of 8%.
III. Nicanor, a social media influencer and apologist was paid Php 5,000,000. He has the option to be
taxed at 8% or graduated tax rate.
IV. Nicanor, a VAT-registered taxpayer, whose gross sales is only Php 1,000,000.00 is not qualified to
use 8% rate
a. II, III and IV
b. III
c. III and IV
d. IV
Explanation: Nicanor (I) can only use graduated tax. In II, he is self-employed hence has option to use 8%. In III,
he exceeded the Php 3M threshold hence disqualified from 8%. In IV, VAT-registered taxpayers are disqualified
from using 8% regardless of gross sales or receipts.

10. Which is FALSE?

I. Nicanor, a sari-sari store owner, opted commuted tax of 8%. He is allowed to claim deduction of
Php 250,000.00 on his gross sales.
II. Nicanor, a social media influencer and apologist was paid Php 5,000,000. He is allowed to claim
deduction of Php 250,000.00 on his gross receipts.
III. Nicanor, a VAT-registered taxpayer, whose gross sales is only Php 1,000,000.00 is allowed to
claim deduction of Php 250,000.00 on his gross sales.
a. I, II, III
b. II, III
c. III
d. II
Explanation: Nicanor (I) is allowed since 8% taxation. In II, he is required to use graduated tax hence not
allowed. In III, he as a VAT-registered taxpayer is subject to graduated tax.

11. Which is FALSE? Assume all incomes are derived from within the Philippines
I. Nicanor, a non-resident citizen who is engaged in trade or business has option to use 8% or
graduated tax rate
II. Nick Aynor, a resident alien who is in the practice of his profession can opt to use 8% taxation
III. Nica Knorr, a non-resident alien who is engaged in trade or business can use either graduated or
8% taxation
IV. Nick Nore, a non-resident alien who is not engaged in trade or business can use graduated tax
rate
V. Estate of Nicanor can only use graduate tax
a. II, III, IV, V
b. IV
c. III, IV
d. IV, V
Explanation: IV is subject to final tax

12. S1 – Nicanor, an NRC based in Canada opened a bank account in ABC Bank, a DC. The source of the
interest income of Nicanor is derived from within the Philippines.
S2 – Nicanor, an RA, opened a bank account in ABC Bank, a DC. The source of the interest income of
Nicanor is derived from within the Philippines.
S3 – Nicanor, an NRAETB opened a bank account in ABC Bank, a DC. The source of the interest income of
Nicanor is derived from within the Philippines.
S4 – Nicanor, an NRANETB opened a bank account in ABC Bank, a DC. The source of the interest income
of Nicanor is derived from within the Philippines.
Which is FALSE?
a. S1
b. S2
c. S3
d. S4
e. None
Explanation: Borrower is a resident of the Philippines

13. S1 – Nicanor, an NRC based in Canada opened a bank account in ABC Bank, a NRFC. The income is subject
to 20% final tax.
S2 – Nicanor, an RA, opened a bank account in ABC Bank, a DC. The withholding agent is the bank.
S3 – Nicanor, an NRAETB opened a bank account in ABC Bank, a DC. The interest income is not required
to be reported by Nicanor.
S4 – Nicanor, an NRANETB opened a bank account in ABC Bank, an NRFC. The interest income is exempt
from taxation
Which is FALSE?
a. S1
b. S2
c. S3
d. S4
Explanation: Interest income is active/ordinary income because the source id derived from within the Philippines

14. Which is TRUE? ABC Corp declared dividends.

S1- If ABC Corp is DC the source of the income is derived from within the Philippines
S2 – If ABC Corp is RFC the source of the income is derived from within the Philippines if the dominant income
last year is Philippine income
S3 – If ABC Corp is NRFC the source of the income is derived from within the Philippines if the dominant income
last year is Philippine income
S4 – If ABC Corp is a foreign corporation, the source of the income is derived from without the Philippines
a. S1
b. S1, S2 and S3
c. S1 and S4
 d. S4
e. All are true
Explanation: pre-dominant test is gross income for the past three years

15. Which is FALSE in withholding tax system?

S1 – All passive income derived from within the Philippines are subject to final withholding tax
S2 – Income payments are generally subject to withholding tax
S3 – If an income is exempted from taxation, it is not subject to withholding
S4 – A withholding agent is required to withhold and remit taxes on all its income payments
a. S1 and S4
b. S1, S2 and S4
c. S2 and S3
d. S1
e. S4
Explanation: S1 – not all are subject (example intercorporate dividends; interest from long term deposits)
S2 – true
S3 – true
S4 – if TWA, casual purchases not exceeding Php 10k are exempted; if income exempt from tax is not subject to
withholding

16. S1: ABC Corporation was identified as a top withholding agent by the BIR. In case the company
purchases raw material goods for its production, the company is required to withhold 1% expanded
withholding tax for its purchases.

S2: ABC Corporation was identified as a top withholding agent by the BIR. In case the company purchases raw
material goods for its production, the company is required to withhold 2% expanded withholding tax.
a. Only S1 is true
b. Only S2 is true
c. Both are true
d. Both are false
Explanation: S2 is false because the rate is 1%.

17. S1: ABC Corporation was identified as a top withholding agent by the BIR. In case the company engages
the services of XYZ Corporation, a security agency company, to provide security guards to the former,
ABC Corporation is required to withhold 1% expanded withholding tax for the amount billed by XYZ
Corporation (excluding the salaries of the guards).

S2: ABC Corporation was identified as a top withholding agent by the BIR. In case the company engages the
services of XYZ Corporation, a security agency company, to provide security guards to the former, ABC
Corporation is required to withhold 2% expanded withholding tax for the amount billed by XYZ Corporation
(excluding the salaries of the guards).
a. Only S1 is true
b. Only S2 is true
c. Both are true
d. Both are false
Explanation: S1 is false because the rate is 2%.

18. ABC Corporation was identified as a top withholding agent by the BIR. One day, the accounting
department, headed by Nicanor, requested the company to treat all of its staff a Jollibee meal amounting
to Php 9,000 because it is already tax season, and the employees are working a minimum of 18-hours a
day. The company granted the request. Which is FALSE?
a. The transaction is exempt from expanded withholding tax
b. The transaction is not subject to withholding tax on compensation even if it is for employee
benefits
c. The transaction is not subject to final withholding tax
d. The transaction is not subject to expanded withholding tax but subject to withholding tax on
compensation
Explanation: A, B and C are true. It is not subject to WTC. Single transaction with less than 10k is exempt from
EWT.

19. ABC Corporation was identified as a top withholding agent by the BIR. One day, the accounting
department, headed by Nicanor, requested the company to treat all of its staff a Jalibee meal amounting
to P 1,000 because it is already tax season, and the employees are working 18-hours a day. The company
granted the request. Within the taxable year, the company transacted with Jalibee five times for buying
Jollibee meals with a total amount of Php 7,000. As a result of purchases during the taxable year, the
company is:
a. Required to withhold expanded withholding tax of 1%
b. Required to withhold expanded withholding tax of 2%
c. Not required to withhold expanded withholding tax
d. Required to provide tax credit certificate to Jalibee
Explanation: Jalibee is not a regular supplier. Minimum of 6 transactions before a withholding is required.

20. ABC College, a non-stock, non-profit educational institution, operates a canteen, bookstore, and
dormitory inside its campus which are commercial in nature. The income from the sale of goods and/or
services by the canteen, bookstore, and dormitory inside the campus are actually, directly, and exclusively
used for educational purposes. Using the data provided, which is FALSE?
S1 - Income from related activity is exempt from taxation
S2 - Income from unrelated activity is subject to regular tax
S3 - Income from unrelated activity is exempt from income tax

a. S1
b. S2
c. S3
d. All are true
Explanation: If non stock, non-profit, the educational institution is exempt if income shall be used actually, directly
and exclusively for educational purpose

21. ABC Corp is required to file income tax returns and the following are the deadlines assuming it applies
calendar year basis, except:
S1 – 1st Quarter – May 31
S2 – 2nd Quarter – August 29
S3 – 3rd Quarter – November 29
S4 – Annual – April 15
a. S1
b. S2
c. S3
d. S4
Explanation: May 30 is the deadline (60 days from close of taxable quarter)

22. Nicanor is filing his annual income tax return. His computed income tax due is Php 5,000 and he has tax
credits amounting to Php 4,000. Which is TRUE?
a. He can pay the balance in installment, Php 500 upon filing and Php 500 before October 15
b. He is not allowed to pay on installment because the payable is below Php 1,000
c. He can pay nothing during the annual filing and pay the balance of Php 1,000 on or before August
15
d. He will be subjected to penalties if he pays on April 15
Explanation: TAX DUE is exceeding Php 2,000 and payment is in equal installments

23. In the deadline of filing of 2020 Annual Income Tax Returns, which is FALSE?
S1 – ABC Corp. employing fiscal year ending January 31, the deadline is May 15 of the same year
S2 – ABC Corp. employing fiscal year ending June 30, the deadline is October 15 of the same year
S3 – ABC Corp. employing fiscal year ending October 31, the deadline is February 15 of the same year
S4 – ABC Corp. employing calendar, the deadline is April 15 of the following year
a. S1
 b. S2
c. S3
d. S4
Explanation: February 15 of the following year

COMPREHENSIVE PROBLEMS:
ABC Realty is expanding and started buying real properties for future developments. On January 31,
2020, Nicanor, the owner of an agricultural land with an area of one hectare sold the same to ABC
Realty company in the amount of Php 4,000,000. The tax declaration showed market value of Php
2,000,000. Upon acquisition and consistent with its future developmental plan, ABC Realty classified the
property as an investment property. In 2021, the Company accelerated the development. On April 19,
2022, the Company started selling lots. Inday bought two units consisting of one commercial (500 sqm)
and one residential (500 sqm) lots in the amount of Php 4,000,000 and Php 3,000,000, respectively.

Other information:
Classification of properties BIR zonal valuation/sqm Local Assessor’s valuation/sqm
Agricultural 500 200
Residential 5,000 1,000
Commercial 10,000 2,000
24. In capital gains tax, which is FALSE?
S1 - The seller is the person liable to pay the capital gains tax if there is no agreement
S2 - The buyer is the one liable if there’s an agreement but the tax so paid is part of the
consideration
a. Only S1 is true
b. Only S2 is true
c. Both are true
d. Both are false
Explanation: Both statements are true

25. What is the proper classification of the property in the books of ABC Realty?
2020 2021 2022
S1 Capital asset Ordinary asset Ordinary asset
S2 Capital asset Capital asset Ordinary asset
S3 Ordinary asset Ordinary asset Ordinary asset
S4 Capital asset Capital asset Capital asset
a. S1
b. S2
c. S3
d. S4
Explanation: all are ordinary asset because all real properties acquired by a realty company are ordinary assets

26. How much is the capital gains tax in the sale by Nicanor of the real property to ABC Realty?
a. Php 300,000
b. Php 240,000
c. Php 120,000
d. Php 3,000,000
Explanation: SP 5,000,000 (500/sqm x area of 10,000) x 6% = 300,000

27. The deadline of the filing of the capital gains tax return is?
a. March 1
b. February 29
c. March 2
d. February 5
Explanation: 30 days from sale

28. The deadline of the filing of the creditable withholding tax is?
a. May 10
b. May 5
 c. May 19
d. May 15
Explanation: 10 days from sale

29. The deadline of the filing of the documentary stamp tax return in the sale of property by Nicanor is?
a. February 5
b. March 1
c. March 5
d. February 28
Explanation: 5th day following month of sale

30. The deadline of the filing of the documentary stamp tax return in the sale of property by ABC Realty is?
a. May 5
b. May 15
c. May 19
d. May 10
Explanation: 5th day following month of sale

31. Assuming the creditable withholding tax is 5%, how much is the tax required to be withheld on the sale
of the commercial lot?
a. Php 200,000
b. Php 250,000
c. Php 300,000
d. Php 0

Explanation: SP 4,000,000
Zonal value 5,000,000 (500sqm x10,000) x 5% = 250,000
MV of assessor 1,000,000

32. Assuming the creditable withholding tax is 5%, how much is the tax required to be withheld on the sale
of the residential lot?
a. Php 180,000
b. Php 150,000
c. Php 60,000
d. Php 125,000

Explanation: SP 3,000,000 x 5% = 150,000

Zonal value (500sqm x 5,000) 2,500,000
MV of assessor 500,000

ABC Corp., a merchandising company, is expanding and started buying real properties for future
developments. On January 31, 2020, Nicanor, the owner of an agricultural land with an area of one
hectare sold the same to ABC Corp. in the amount of Php 4,000,000. The tax declaration showed market
value of Php 2,000,000. Upon acquisition and consistent with its future developmental plan, ABC Corp.
classified the property as an investment property. In 2021, the property remained idle. The Company
accelerated the development the following year, hence on April 19, 2022, the Company started
constructing its new building offices.

33. What is the proper classification of the property in the books of ABC Realty?

2020 2021 2022

S1 Capital asset Ordinary asset Ordinary asset
S2 Capital asset Capital asset Ordinary asset
S3 Ordinary asset Ordinary asset Ordinary asset
S4 Capital asset Capital asset Capital asset

a. S1
b. S2
 c. S3
d. S4
Explanation: The company is not a realtor, hence, the property is a capital asset from 2020 to 2021. In
2022, it became an ordinary asset because the same was used in business

ABC Corp., a merchandising company, is expanding and started buying real properties for future
developments. On January 31, 2020, Nicanor, the owner of an agricultural land with an area of one
hectare sold the same to ABC Corp. in the amount of Php 4,000,000. The tax declaration showed market
value of Php 2,000,000. Upon acquisition and consistent with its future developmental plan, ABC Corp.
classified the property as an investment property. In 2021, the property remained idle. In 2022, the
Company sold the land to XYZ Realty Corp., a subdivision developer in the amount of Php 3,000,000.

Other information:

Classification of properties BIR zonal valuation/sqm Local Assessor’s valuation/sqm

Agricultural 500 200
Residential 5,000 1,000
Commercial 10,000 2,000

34. How much is the capital gains tax in the sale by ABC Corp. to XYZ Realty?
a. Php 300,000
b. Php 240,000
c. Php 6,000,000
d. Php 3,000,000

Explanation: SP 3,000,000
ZV 5,000,000 x 6% (500/sqm x area of 10,000)
AV 2,000,000

35. How much is the creditable withholding tax in the sale by ABC Corp. to XYZ Realty?
a. Php 0
b. Php 300,000
c. Php 6,000,000
d. Php 3,000,000

Explanation: The asset is a capital asset hence not subject to CWT

36. Which is TRUE in fringe benefits tax?

S1 - Supervisory employees are those who, in the interest of the employer, effectively recommend such
managerial actions or the exercise of such authority is not merely routinary or clerical in nature but requires the
use of independent judgment
S2 - Managerial employees are ones who are vested with powers or prerogatives to lay down and execute
management policies and/or hire, suspend, lay-off, recall, discharge, assign or discipline employees
S3 – Rank-and-File employees are employees who are holding neither managerial nor supervisory position
a. S1
b. S2
c. S3
d. All of the above

Explanation: all are true

37. Which is FALSE in fringe benefits tax?

S1 – Monetary value of fringe benefit less fringe benefits is equal to fringe benefits tax.
S2 – Grossed-up monetary value of fringe benefits less of monetary value of fringe benefits is equal to fringe
benefits tax.
S3 – Fringe benefits tax plus monetary value of fringe benefits is equal to grossed-up monetary value of the fringe
benefits.
a. S1
 b. S2
c. S3
d. S2 and S3 are true
Explanation:
S1 is False
S2 and S3 are true

38. Which is TRUE?

S1 – All incomes are generally taxable.
S2 – All passive incomes are generally subject to final tax.
a. S1 is true
b. S2 is true
c. Both are true
d. Both are false
Explanation: S1 is true. S2 is false because it is the exception.

39. Which is FALSE?

S1 –Nicanor is a minimum wage earner. His total compensation including overtime pay, night shift differential
and hazard pay amounted to Php 300,000. He is exempt from income tax.
S2 – Nicanor’s daily wage amounted to Php 600.00 per day which is beyond the statutory minimum wage of Php
537. His salary is subject to withholding tax on compensation.
a. S1
b. S2
c. Both are true
d. Both are false
Explanation: S1 is true as minimum wage is exempted regardless of total amount. S2 is false because total
compensation does not exceed Php 250,000.00 (see withholding tax on compensation table)

40. Who is required to file Annual Income Tax Return (AITR)?

No. of Employer Income Tax Due Tax Withheld by Employer
Nicanor 1 Php 10,000 Php 11,000
Jose 2 (minimum wage earner) Php 0 Php 0
Andres 1 Php 10,000 Php 9,000
Goyo 2 Php 10,000 Php 10,000

a. Nicanor and Andres

b. Andres and Jose
c. All of them except Jose
d. All of them are required

Explanation: employees with multiple employers are required to file ITRs and those whose tax withheld is not
equal to employees’ tax due

PROBLEMS
A.
Consider the following in answering a set of questions:

Nicanor is a licensed civil engineer, a supplier of construction materials and a lessor of properties. He was
tagged by the BIR as a Top Withholding Agent. The records from his books of accounts disclosed the following:

Professional Fees Construction Company

Gross Receipts/Sales 1,000,000.00 1,000,000.00
Cost of Service/Sales:
Beginning Inventory 200,000.00
Add: Purchases 300,000.00
Goods Available for Sale 500,000.00
Less: Ending Inventory 100,000.00
Cost of sales 300,000.00 400,000.00
 Gross Profit 700,000.00 600,000.00
Less: Expenses:
Salaries and wages 100,000.00 100,000.00
Rent expense 50,000.00 50,000.00
Representation expenses 50,000.00 50,000.00
(services)
Gas and oil 50,000.00 50,000.00
Depreciation 50,000.00 50,000.00
Utilities expenses 50,000.00 50,000.00
Professional fees 50,000.00 50,000.00
Net income 300,000.00 200,000.00
Other income:
Rent income 100,000.00 100,000.00
Total Net Income before tax 400,000.00 300,000.00

Other information:
• Professional fees were made to VAT-registered individual professionals.
• Tax withheld by Nicanor’s clients with duly supported BIR Form 2307 amounted to Php
100,000.00

41. How much is the total expanded withholding tax which should be withheld by Nicanor?
a. Php 23,000
b. Php 20,000
c. Php 18,000
d. Php 28,000
Solution:
Professional Construction Total Rate
Fees Company
Purchases 300,000.00 300,000 1% 3,000
Rent expense 50,000.00 50,000.00 100,000 5% 5,000
Representation 50,000.00 50,000.00 100,000 2% 2,000
expenses
Gas and oil 50,000.00 50,000.00 100,000 1% 1,000
Utilities expenses 50,000.00 50,000.00 100,000 2% 2,000
Professional fees 50,000.00 50,000.00 100,000 10% 10,000
Total 23,000

42. How much is the non-deductible representation expense?

a. Php 66,000
b. Php 60,000
c. Php 70,000
d. Php 90,000
Solution:
Actual representation expense 100,000
Allowable: Service (1,200,000 x 2%) 24,000 (including rent income)
Goods (1,000,000 x 1%) 10,000 34,000
Disallowed 66,000

43. Disregarding the limitation on expenses and disallowance due to non-withholding, how much is the total
income tax due if Nicanor did not choose 8% taxation?
a. Php 105,000
b. Php 125,000
c. Php 115,000
d. Php 160,000

Solution:
 Professional Fees Construction Total
Company
Gross Receipts/Sales 1,000,000.00 1,000,000.00 2,000,000
Cost of Service/Sales:
Beginning Inventory 200,000.00
Add: Purchases 300,000.00
Goods Available for 500,000.00
Sale
Less: Ending Inventory 100,000.00
Cost of sales 300,000.00 400,000.00 700,000
Gross Profit 700,000.00 600,000.00 1,300,000
Less: Expenses:
Salaries and wages 100,000.00 100,000.00 200,000
Rent expense 50,000.00 50,000.00 100,000
Representation 50,000.00 50,000.00 100,000
expenses (services)
Gas and oil 50,000.00 50,000.00 100,000
Depreciation 50,000.00 50,000.00 100,000
Utilities expenses 50,000.00 50,000.00 100,000
Professional fees 50,000.00 50,000.00 100,000
Net income 300,000.00 200,000.00 500,000
Other income:
Rent income 100,000.00 100,000.00 200,000
Total Net Income 400,000.00 300,000.00 700,000
before tax
Tax due based on 400,000=30,000
table 300,000x25%=75,000
105,000

44. If Nicanor opted for Optional Standard Deduction (OSD), his total tax still due and payable for the year
is?
a. Php 186,000
b. Php 250,000
c. Php 286,000
d. Php 150,000

Solution:
Total
Gross Receipts 1,000,000
Gross sales (Construction) 1,000,000
Add: Rent income 200,000
Total Gross 2,200,000
Less: OSD (40%) 880,000
Taxable income 1,320,000

Income Tax Due (graduated 800,000 = 130,000 286,000

tax table) 520,000x30%=156,000
Less: Tax Credits 100,000
Tax still due and payable 186,000

45. If Nicanor opted for 8% preferential tax, his total tax still due and payable for the year is?
a. Php 56,000
b. Php 140,000
c. Php 40,000
d. Php 156,000
 Solution:
Total
Gross Receipts 1,000,000
Gross sales (Construction) 1,000,000
Add: Rent income 200,000
Total Gross 2,200,000
Less: 250,000
Taxable income 1,950,000
Rate 8%
Income Tax Due 156,000
Less: Tax Credits 100,000
Tax still due and payable 56,000

B.

Consider the following in answering the questions below:

Nicanor, a forty-four-year-old loveless, is employed by ABC Corp. for the past thirty (30) years. Below are the
compensation and other benefits he received from the company the year 2021.
13th Month Pay 100,000
De Minimis benefits 30,000
Statutory contributions (SSS, PHIC, etc) 20,000
Basic Salary per month 100,000
Monthly Representation Allowance 50,000
Monthly Transportation Allowance 50,000
Cost of Living Allowance 50,000
Fixed Housing Allowance 50,000
Commission 100,000
Profit-Sharing 100,000
Hazard Pay 50,000
Overtime Pay 100,000

In 2022, ABC Corp. suffered serious business reverses. The Company, to temper losses, offered retirement or
separation benefits to employees.

46. How much is the total EXCLUSIONS FROM GROSS INCOME?

a. Php 110,000
b. Php 140,000
c. Php 150,000
d. Php 90,000
Solution:
Exclusions
th
13 Month Pay 90,000
SSS, PHIC, Pagibig, Union 20,000
Total 110,000
Note: De minimis benefit is not an exclusion from gross income

47. How much is the total TAXABLE COMPENSATION?

a. Php 1,760,000
b. Php 1,770,000
c. Php 1,750,000
d. Php 1,780,000
Solution:
Taxable Compensation Income
Basic Salary per month 1,200,000
Fixed Representation 50,000
Fixed Transportation 50,000
 Cost of Living Allowance 50,000
Fixed Housing Allowance 50,000
Commission 100,000
Profit-Sharing 100,000
Hazard Pay 50,000
Overtime Pay 100,000
Taxable 13th month 10,000
Total Taxable 1,760,000

48. If Nicanor will avail the retirement benefits under the Company’s retirement plan effective January 1,
2022? The possible tax exposure if Nicanor will receive Php 1,000,000 is?
a. Php 190,000
b. Php 0
c. Php 175,000
d. Php 180,000
Solution:
Benefit 1,000,000
Tax on 800,000 130,000
Tax on 200,000 x 30% 60,000
Total 190,000

49. Assuming ABC Corp. has no retirement plan and Nicanor availed of the offer of retirement benefit in the
amount of Php 1,000,000 as proposed by the Company, the possible tax exposure is?
a. Php 190,000
b. Php 0
c. Php 175,000
d. Php 180,000
Solution:
Benefit 1,000,000
Tax on 800,000 130,000
Tax on 200,000 x 30% 60,000
Total 190,000

50. If Nicanor will be forced to resign because of the losses, the possible tax exposure on the separation pay
is?
a. Php 190,000
b. Php 0
c. Php 175,000
d. Php 180,000
Solution: Exempt because it is beyond the control of the employee

51. If Nicanor is a septuagenarian, the possible tax exposure on the retirement pay of Php 1,000,000
assuming ABC Corp. has no retirement plan is?
a. Php 190,000
b. Php 0
c. Php 175,000
d. Php 180,000
Solution: Taxable because he is over 65 years old
Benefit 1,000,000
Tax on 800,000 130,000
Tax on 200,000 x 30% 60,000
Total 190,000

C.
The following are employees of ABC Corp.
Employees Compensation Frequency
Nicanor 537 Daily
Zac 685 Daily
 Avrhi 1,000 Daily
Jose 10,000 Weekly
Andres 20,000 Semi monthly
Goyo 100,000 Monthly

52. Assuming the Company has twenty-two working days (or equivalent to four weeks) January, the total
monthly withholding tax on compensation required to be withheld by you as the Accountant of ABC
Corp. on the salary of Avrhi is?
a. Php 1,386.00
b. Php 63.00
c. Php 1,836.00
d. Php 1,638.00

53. Assuming the Company has twenty-two working days (or equivalent to four weeks) January, the total
monthly withholding tax on compensation required to be withheld by you as the Accountant of ABC
Corp. on the salary of Jose is?
a. Php 4,615.68
b. Php 1,153.92
c. Php 3,978,43
d. Php 5,893.45

54. Assuming the Company has twenty-two working days (or equivalent to four weeks) January, the total
monthly withholding tax on compensation required to be withheld by you as the Accountant of ABC
Corp. on the salary of Andres is?
a. Php 4,166,50
b. Php 2,083.25
c. Php 1,250.00
d. Php 3,576.50

55. Assuming the Company has twenty-two working days (or equivalent to four weeks) January, the total
monthly withholding tax on compensation required to be withheld by you as the Accountant of ABC
Corp. is?
a. Php 31,001.41
b. Php 24,133.40
c. Php 26,834.91
d. Php 35,876.50
Solution:
Employees Compensation Frequency WTC Monthly
Nicanor (MWE) 537 Daily 0
Zac 685 Daily 0
Avrhi 1,000 Daily 63 x 22 days 1,386.00
Jose 10,000 Weekly 1,153.92 x 4 weeks 4,615.68
Andres 20,000 Semi monthly 2,083.25 x 2 4,166.50
Goyo 100,000 Monthly 20,833.23 20,833.23
Total 31,001.41

D.
ABC Corp., a PAGCOR-licensee POGO operator employed the following:
• Wan (resident alien)
• Wen (non-resident alien)
• Win (resident citizen)
56. Assuming they all receive Php 100,000 as monthly compensation, the monthly final tax required to be
withheld by ABC Corp. is?
a. Php 75,000
b. Php 25,000
c. Php 0
d. Php 50,000
Solution: Aliens employed by POGO entities are subject to 25% final tax (Php 200,000 x 25%)
 E.

In preparing the 2021 Annual Income Tax Return of Nicanor, the following information were culled from his
accounting records:

Gross sales – Php 2,500,000

Cost of sales – Php 1,000,000
Salaries and wages – Php 100,000
Rent Expense – Php 100,000
Depreciation – Php 100,000
Utilities Expense – Php 100,000
Repairs and Maintenance – Php 100,000
Other income:
Rental income – Php 1,000,000
Interest income from bank deposits in Bank of the Pelepens – Php 100,000
Dividends from ABC Corp., a DC – Php 100,000
Cash Prizes – Php 100,000

The duly filed 1st quarterly income tax return indicated that Nicanor opted 8% taxation.

In addition, he provided you the following information on other assets which he disposed of during the year:
Real property classified as capital asset:
Consideration indicated in the Deed of Absolute Sale (DOAS) – Php 20 Million
Zonal value of lot – Php 10 Million
Assessor’s fair value of lot – Php 5 Million
Assessor’s fair value of house – Php 5 Million
Appraiser’s value – Php 25 Million

Shares of stocks not listed in stock exchange:

Selling price of shares of stocks – Php 2,000,000
Price of shares of stocks when he purchased the same last year – Php 1,000,000
Audited Financial Statements of the company disclosed the following:
Balance Sheet: Asset - Php 10 Million
Liability – Php 7 Million
Stockholders’ Equity – Php 3 Million
Income Statement: Revenue – Php 5 Million
Cost and Expense – Php 3 Million
Net Income – Php 2 Million
Additional information: Outstanding shares of stocks is 10,000 and cost to transfer shares to new buyer is Php
100,000.

57. What is the correct income tax due of Nicanor for the taxable year 2021?

a. Php 490,000
b. Php 554,000
c. Php 522,000
d. Php 190,000
Solution: Nicanor is disqualified from using the 8% preferential tax hence his tax shall be computed using the
graduated tax rate

Gross sales – 2,500,000

Cost of sales – 1,000,000
Gross income 1,500,000
Less: Salaries and wages 100,000
Rent Expense 100,000
Depreciation 100,000
Utilities Expense 100,000
 Repairs and Maintenance 100,000 500,000
Net income 1,000,000
Add: Other income:
Rental income 1,000,000
Taxable income 2,000,000

Income tax due 490,000

58. Assuming Nicanor opted for graduated tax rate using itemized deductions, his annual income tax due is?
a. Php 490,000
b. Php 554,000
c. Php 522,000
d. Php 190,000

Solution:
Gross sales – 2,500,000
Cost of sales – 1,000,000
Gross income 1,500,000
Less: Salaries and wages 100,000
Rent Expense 100,000
Depreciation 100,000
Utilities Expense 100,000
Repairs and Maintenance 100,000 500,000
Net income 1,000,000
Add: Other income:
Rental income 1,000,000
Taxable income 2,000,000

Income tax due 490,000

59. Assuming Nicanor opted for graduated tax rate using optional standard deductions, his taxable income
is?
a. Php 2,100,000
b. Php 2,500,000
c. Php 1,200,000
d. Php 2,220,000
Solution:
Gross sales – 2,500,000
Add: Rental income 1,000,000
Total gross receipts 3,500,000
Less: OSD (40%) 1,400,000
Taxable income 2,100,000

60. How much is the cash to be received by Nicanor on the sale of real property classified as capital asset
assuming the capital gains tax was properly withheld by the buyer?
a. Php 18,800,000
b. Php 20,000,000
c. Php 14,100,000
d. Php 1,200,000
Solution:
Selling price – Php 20 Million x 6% = 1,200,000
Zonal value of lot – Php 15 Million (house and lot)
Assessor’s fair value – Php 10 Million (house and lot)

Selling price 20,000,000

Less: CGT 1,200,000
Cash received 18,800,000
 61. How much is the capital gains tax to be paid on the sale of unlisted shares of stocks?
a. Php 150,000
b. Php 300,000
c. Php 120,000
d. Php 135,000
Solution: Cost to transfer is NOT deductible to the seller against the selling price. The costs related to the
purchase are deductible when the shares were eventually sold

Selling price 2,000,000

Less: Cost 1,000,000
Capital gain 1,000,000
Rate 15%
CGT 150,000

F.
The following cash benefits were given to Nicanor, a private employee during December 2021:
• Monetized vacation leave credits (20 days at Php 1,000 per day) – Php 20,000
• Monetized sick leave credits (20 days at Php 1,000 per day) – Php 20,000
• Uniform allowance – Php 10,000
• Christmas cash gift – Php 10,000
• Employee achievement award (loyalty award) – Php 10,000
• Annual medical assistance – Php 10,000

62. You were preparing the Certificate of Compensation Payment / Tax Withheld (BIR Form 2316) of Nicanor.
How much is the total excess de minimis benefits that should form part of the Php 90,000 threshold?
a. Php 19,000
b. Php 39,000
c. Php 29,000
d. Php 24,000

Solution:
• Monetized vacation leave credits (excess 10 days at Php 1,000 per day) – Php 10,000
• Excess Uniform allowance – Php 4,000
• Excess Christmas cash gift – Php 5,000

G.

Consider the following in answering the questions below:

A non-individual taxpayer made available the following financial information covering TY 2021:

Statement of Financial Position Statement of Comprehensive Income

Assets 20,000,000 Gross receipts 5,000,000
Liabilities 15,000,000 Cost of service 3,000,000
Stockholders’ Equity 5,000,000 Gross profit 2,000,000
Expenses 1,000,000
Net income 1,000,000

63. Assuming the taxpayer is a domestic corporation, the income tax due is?
a. Php 200,000
b. Php 300,000
c. Php 250,000
d. Php 0

Solution: rate is 20% because taxable income is below P5M and asset is below P100M.
Statement of Comprehensive Income
Gross receipts 5,000,000
Cost of service 3,000,000
 Gross profit 2,000,000
Expenses 1,000,000
Net income 1,000,000
Tax rate 20%
Tax due 200,000

64. Assuming the taxpayer is a resident foreign corporation, the income tax due is?

a. Php 200,000
b. Php 300,000
c. Php 250,000
d. Php 0

Solution: rate is 25% for RFC. 20% rate is not available to RFCs.
Statement of Comprehensive Income
Gross receipts 5,000,000
Cost of service 3,000,000
Gross profit 2,000,000
Expenses 1,000,000
Net income 1,000,000
Tax rate 25%
Tax due 250,000

65. Assuming the taxpayer is a regional operating headquarter of a multi-national company, the income tax
due is?

a. Php 200,000
b. Php 300,000
c. Php 250,000
d. Php 100,000

Solution: rate is 10% until 2021. By January 1, 2022, the rate is 25%.
Statement of Comprehensive Income
Gross receipts 5,000,000
Cost of service 3,000,000
Gross profit 2,000,000
Expenses 1,000,000
Net income 1,000,000
Tax rate 10%
Tax due 100,000

H.

A domestic corporation made available the following financial information covering TY 2021:

Statement of Financial Position Statement of Comprehensive Income

Assets: Gross receipts 5,000,000
Current 120,000,000 Cost of service 3,000,000
Non-current (land/bldg) 80,000,000 Gross profit 2,000,000
Liabilities 150,000,000 Expenses 1,000,000
Stockholders’ Equity 50,000,000 Net income 1,000,000

66. The income tax due is?

a. Php 200,000
b. Php 300,000
c. Php 250,000
d. Php 0
Solution: rate is 25% because asset excluding land exceeded P100M.
Statement of Comprehensive Income
Gross receipts 5,000,000
Cost of service 3,000,000
Gross profit 2,000,000
Expenses 1,000,000
Net income 1,000,000
Tax rate 25%
Tax due 250,000

A domestic corporation made available the following financial information covering TY 2021:

Statement of Financial Position Statement of Comprehensive Income

Assets: Gross receipts 15,000,000
Current 100,000,000 Cost of service 5,000,000
Non-current (land/bldg) 50,000,000 Gross profit 10,000,000
Liabilities 90,000,000 Expenses 5,000,000
Stockholders’ Equity 60,000,000 Net income 5,000,000

67. The income tax due is?

a. Php 1,000,000
b. Php 1,500,000
c. Php 1,250,000
d. Php 2,000,000

Solution: rate is 20% because asset excluding land does not exceed P100M and net taxable income does not
exceed P5M.
Statement of Comprehensive Income
Gross receipts 15,000,000
Cost of service 5,000,000
Gross profit 10,000,000
Expenses 5,000,000
Net income 5,000,000
Tax rate 20%
Tax due 1,000,000

ABC College Foundation, a non-stock, non-profit entity, made available the following financial information
covering TY 2021:

Statement of Financial Position Statement of Comprehensive Income

Assets: Gross receipts 15,000,000
Current 120,000,000 Cost of service 5,000,000
Non-current (land/bldg) 80,000,000 Gross profit 10,000,000
Liabilities 150,000,000 Expenses 4,000,000
Stockholders’ Equity 50,000,000 Net income 6,000,000

68. The income tax due is?

a. Php 1,200,000
b. Php 1,800,000
c. Php 1,500,000
d. Php 0

Solution: Non-stock, non-profit educational institution is exempt from taxation.

ABC Corp. an Offshore Gaming licensee of PAGCOR made available the following financial information:
 • Actual gross gaming revenues - Php 100,000,000
• Agreed pre-determined minimum revenue with PAGCOR from gaming operations – Php
200,000,000
• Costs and expenses from gaming revenues – Php 50,000,000
• Gross Revenues from non-gaming operations – Php 50,000,000
• Costs and expenses from non-gaming revenues – Php 30,000,000

69. The tax due on gaming operations is?

a. Php 10,000,000
b. Php 5,000,000
c. Php 12,500,000
d. Php 37,500,000

Solution: 5% of higher of actual gaming revenue and the agreed pre-determined minimum revenue (Php 200M
x 5% = Php 10M)

70. The tax due on non-gaming operations is?

a. Php 10,000,000
b. Php 5,000,000
c. Php 2,500,000
d. Php 1,000,000

Solution:
Gross revenues from non-gaming operations 50,000,000
Less: Cost and expenses from non-gaming operations 30,000,000
Taxable income 20,000,000
Regular Rate 25%
Income tax due 5,000,000
SUGGESTED ANSWERS & SOLUTION TEAM PRTC
FIRST PRE-BOARD EXAMINATION February 20 – 22, 2022

MANAGEMENT ADVISORY SERVICES

1 B 21 D 41 D 61 A
2 C 22 B 42 A 62 B
3 A 23 A 43 B 63 D
4 D 24 B 44 D 64 E
5 D 25 D 45 A 65 C
6 B 26 D 46 A 66 D
7 A 27 D 47 A 67 C
8 B 28 B 48 B 68 A
9 C 29 D 49 B 69 B
10 C 30 C 50 A 70 A
11 A 31 A 51 C
12 C 32 D 52 C
13 A 33 A 53 B
14 D 34 B 54 C
15 D 35 D 55 A
16 A 36 C 56 A
17 B 37 A 57 C
18 A 38 B 58 D
19 C 39 D 59 C
20 B 40 C 60 D

Page 1 of 6
 AUDITING

1 D 21 B 41 B 61 C
2 D 22 A 42 C 62 D
3 A 23 B 43 B 63 B
4 B 24 A 44 A 64 B
5 B 25 C 45 A 65 C
6 C 26 C 46 A 66 D
7 A 27 B 47 A 67 B
8 B 28 D 48 C 68 C
9 D 29 B 49 B 69 C
10 D 30 C 50 D 70 B
11 D 31 D 51 B
12 B 32 A 52 B
13 D 33 C 53 B
14 D 34 A 54 B
15 D 35 A 55 D
16 B 36 B 56 A
17 C 37 D 57 C
18 B 38 A 58 B
19 A 39 D 59 D
20 C 40 C 60 B

Page 2 of 6
 TAXATION

1 C 21 A 41 C 61 A
2 D 22 D 42 B 62 A
3 A 23 C 43 D 63 A
4 C 24 C 44 B 64 B
5 D 25 C 45 C 65 D
6 A 26 C 46 C 66 C
7 B 27 C 47 B 67 A
8 D 28 B 48 D 68 D
9 D 29 A 49 D 69 A
10 B 30 A 50 A 70 B
11 B 31 B 51 A
12 E 32 B 52 B
13 A 33 B 53 C
14 A 34 B 54 D
15 C 35 A 55 C
16 A 36 D 56 B
17 B 37 A 57 B
18 D 38 A 58 B
19 C 39 B 59 B
20 B 40 D 60 D

Page 3 of 6
 REGULATORY FRAMEWORK FOR BUSINESS TRANSACTIONS

1 C 21 D 41 B 61 C 81 C
2 D 22 C 42 D 62 D 82 C
3 B 23 B 43 C 63 D 83 C
4 A 24 B 44 D 64 D 84 D
5 A 25 D 45 C 65 C 85 C
6 A 26 D 46 D 66 A 86 D
7 A 27 D 47 D 67 D 87 C
8 A 28 B 48 C 68 C 88 C
9 B 29 A 49 C 69 C 89 C
10 A 30 A 50 B 70 C 90 D
11 C 31 D 51 A 71 C 91 D
12 B 32 B 52 B 72 D 92 A
13 A 33 C 53 A 73 A 93 A
14 C 34 C 54 D 74 A 94 D
15 B 35 C 55 B 75 A 95 C
16 A 36 D 56 A 76 D 96 A
17 A 37 A 57 B 77 D 97 A
18 D 38 B 58 D 78 B 98 D
19 D 39 D 59 C 79 C 99 D
20 B 40 C 60 A 80 A 100 B

Page 4 of 6
 FINANCIAL ACCOUNTING AND REPORTING

1 C 21 B 41 B 61 A
2 B 22 B 42 C 62 B
3 D 23 B 43 B 63 C
4 B 24 A 44 C 64 A
5 C 25 C 45 C 65 B
6 A 26 D 46 D 66 D
7 C 27 C 47 B 67 A
8 B 28 A 48 B 68 B
9 D 29 D 49 C 69 C
10 B 30 B 50 A 70 D
11 B 31 B 51 D
12 B 32 A 52 C
13 A 33 B 53 B
14 C 34 B 54 C
15 C 35 A 55 D
16 B 36 B 56 A
17 A 37 A 57 C
18 A 38 D 58 A
19 C 39 D 59 C
20 A 40 D 60 C

Page 5 of 6
 ADVANCED FINANCIAL ACCOUNTING AND REPORTING

1 D 21 C 41 D 61 C
2 D 22 B 42 C 62 B
3 C 23 C 43 A 63 D
4 B 24 D 44 A 64 C
5 A 25 D 45 B 65 B
6 D 26 D 46 D 66 D
7 C 27 A 47 C 67 B
8 A 28 C 48 D 68 B
9 D 29 D 49 D 69 D
10 C 30 B 50 C 70 B
11 C 31 D 51 D
12 C 32 A 52 A
13 A 33 B 53 A
14 A 34 B 54 A
15 C 35 A 55 B
16 D 36 B 56 C
17 A 37 D 57 B
18 A 38 D 58 C
19 B 39 C 59 D
20 B 40 C 60 A

Thank you for participating in

Team PRTC Nationwide Online Open First Pre-Board Examination for May 2022 LECPA!

Page 6 of 6
SOLUTION Net free assets 144,000

1. D
2. D 16. D
3. C Unsecured portion of partially secured creditors 25,000
4. B
Unsecured creditors 155,000
5. A
6. D Total unsecured liabilities without priority 180,000
A B C TOTAL
Cap, beg 59,200 104,000 76,800 240,000
Net free assets 144,000
Loss (89,600) (89,600) (44,800) (224,000)
Balance (30,400) 14,400 32,000 16,000 Divide by: Total unsecured liabilities without priority 180,000
Absorption 30,400 (20,267) (10,133) - Recovery per peso 0.80
Balance - (5,867) 21,867 16,000
Absorption - 5,867 (5,867) -
Payments - - 16,000 16,000 17. A
Assets pledged with partially secured
creditors 50,000
7. C
A B C TOTAL
Free assets 160,000
Cap, beg 59,200 104,000 76,800 240,000
Loss (56,800) (56,800) (28,400) (142,000)
Balance 2,400 47,200 48,400 16,000 Liabilities with priority (16,000)

8. A Partially secured creditors (75,000)

P B A TOTAL Unsecured creditors (155,000)

Cap, beg 244,800 494,400 219,200 958,400
Loss (279,840) (466,400)(186,560) (932,800)
Deficiency (36,000)
Balance (35,040) 28,000 32,640 25,600
Absorption 35,040 (25,029) (10,011) -
Payment - 2,971 22,629 25,600
18. A
19. B
9. D 20. B
348,000 + 232,000 = 580 ÷ 80% x 20% = 145,000 21. C
22. B
10. C Inv, beg 101,500
28,000 x 20% = 5,600 Purchases 350,000
Shipments @BP 253,750* 1.3 329,875
11. C TGAS @ BP 781,375
12. C
13. A 23. C
14. A SIT
15. C 253,750* 1.3 = 329,875
Reported by Br 263,900
SIT @BP 65,975
Available for unsecured creditors

Free assets 160,000 Inv end

BR: HO 73,500 – 48,475 + 65975 = 91,000
Liabilities with priority (16,000)
91,000/ 1.3= 70,000 cost
 OV 48,475 A, Capital (184,000 ÷ 2) 92,000
Total Cost 118,475 B, Capital (184,000 ÷ 2) 92,000
HO 210,000
Combined Inv, end 328,475 31. D

24. D Helen Irene Jessie Total

HONI: 2.1M –( 35,000+ 1575,000-253,750- 210,000) BB P560,000 P672,000 P496,000 P1,728,000
- 507,500= 446,250 Net loss ( 115,200) (192,000) ( 76,800) ( 384,00)
Gain 7,200 12,000 4,800 24,000
RBNI: 1,260,000- (781,375- (73,500+65,975)) Balances P452,000 P492,000 P424,000 P1,368,000
-192,500= 425,600 Payment ( 454,800) (454,800)
Bonus P 2,800 P (2,000) P (800) -
RDP: 91,875- (70,000 * 0.3) 70,875 EB P 0 P490,000 P423,200 P 913.200

CNI= 446,250+ 425,600 +70,875= 942,725 32. A

Est total cash P402,000

25. D
Less: Prioritized claims
HO Books Br Books
Fully secured P60,000
Unadj 168,000 195,600 Partially secured (SP) 50,000
a. 12,300 With priority 40,000 150,000
b. 50,000 Net amount to unsecured amounts P252,000
c. (12,800) Partially-secured (UP) P 30,000
d. 2,700 Without priority 330,000 360,000
Estimated deficiency P(108,000)
Adj 207,900 207,900 Estimated recovery rate
26. D (P252,000 divide by P360,000) 70%
60,000+ 20,000 + 15,000= 95,000 * 20%= 19,000
PSC (TBV) P80,000
Less Secured portion 50,000 x 100% P 50,000
27. A
Balance (U. P.) P30,000 x 70% 21,000
P 71,000

33. B
34. B
Gross loss (P1,695,000 + P225,000) 1,920,000
Total Loss: Total capital and the remaining liab Gross gain (P 945,000 + P750,000) (1,695,000)
950,000 + 50,000= 1M Estimated net loss P 225,000
28. C BV of SHE (P1,500,000 - P600,000) 900,000
Est amount recovered by SH P 675,000

35. A
The answer in item 34 means there was no
Gain: 760k-(380k + 260k +120k – 165k)= 165k
deficiency to creditors, otherwise, the stockholders
would recover nothing from liquidation
29. D
36. B
80K + 12K = 92K – 10K = 82K
Realized allowance during 2016 (P120,875 -
P102,430) P 18,445
30. B
Or Allowance before adjustment
Cash 184,000 P19,750
 Less unrealized allowance on ending inventory Inventory cost per home office cost:
(P6,525 / 125%) = P5,220 x 25% Shipment to Branch at cost P 5,500
(1,305) P 18,445 Freight in 175
Total P 5,675
37. D
Sales (P200,000 + P150,000) 43. A
P350,000 COGS @ BP: 17,800+ 105,00- 23,400= 99,400
Cost of Sales: Inventory, beginning (P 12,000 + P RDP= 99,400/ 1.25 * .25= 19,880
7,000) P 19,000
Purchases (P150,000 + P30,000) BP%age= 105/84= 1.25
180,000
Inventory, ending (P14,000 + P9,750) 44. A
(23,570) 175,430 COGS (HO):
Gross profit 46,000+ 328,000 -84,000- 57,000= 233,000
P174,570 COGS @ Cost (BR): 99,400/1.25= 79,520
Operating expenses (P20,000 + P15,000) Combined COGS 312,520
( 35,000) 45. B
Combined net income 46. D
P139,570 47. C
48. D
38. D 49. D
Adjusted balance of Branch account in HO books:
(P49,600 – P1,200 - P1,500 – P500)
P46,400 Total 250,000/.8 312,500
Unadjusted balance of HO account in Branch books: Less: BV of NA 250,000
(P46,400 – P3,200 + P800) Excess 62,500
P44,000
Land (25%) 15,625
39. C Building (75%) 46,875
Journal entry:
Investment in Cebu branch 6,800 Consolidated Land: 300,000 + 50,000 + 15,625
Shipment to Cebu branch 5,500 = 365,625
Unrealized profit 1,100
Cash 200 50. C
Consolidated Bldgs: 400k + 150k + 46,875
40. C = 596,875
Journal entry: 51. D
Home Office 6,960 Assets (P) 1,000,000
Shipment from Home Office 6,600 Assets (S) 300,000
Freight in 200 BCVR 62,500
Cash 160 Less out of pocket costs (120,000)
Consolidated Assets 1,242,500
41. D
Inventory cost per branch cost: 52. A
Shipment from HO at billed price P 6,600 Common Stock: 600,000 + 200,000= 800,000
Freight in (usual freight) 175
Total P 6,775 53. A
NCI: 250,000 / 0.80 * 0.20 = 62,500
42. C
 54. A 66. D
DS Transactions 2020 2021 Net assets P800,000 x P0.34 P 272,000
SP 80,000 125,000
Cost 64,000 100,000
Less SHE:
GP 16,000 25,000 Legal capital P500,000 x P0.31 P155,000
x50% x40% Retained earnings (given) 91,525
RGP 8,000 246,525
DGP 10,000
CTA, credit P 25,475
SALES REVENUE= 600,000 +300,000 – 125,000 = P 775,000
67. B
Net monetary assets
55. B P20,000 x P0.34 P 6,800
COGS: 480,000 + 250,000 -125,000 -8,000 +10,000 = 607,000 Net non-monetary assets
780,000x P0.31 241,800 P 248,600
Less Legal capital P500,000 x P0.31 155,000
56. C Retained earnings, to balance 93,600
Shares ( 100,000 * 30) 3,000,000
Cash 30,000
Equipment (50,000 * 70%) 35,000 68. B
TOTAL 3,065,000 1M x .53= 530,000

69. D
57. B under the cash flow hedge, there is no firm
Shares ( 100,000 * 30) 3,000,000 commitment account.
Cash 30,000
Equipment (50,000 * 70%) 35,000 70. B
Direct cost (50,000 + 10,000 + 20,000) 80,000
TOTAL 3,145,000 Hedged item
(1.26 -1.30) x 40,000= (1,600)
58. C Hedging instrument
59. D (1.27-1.30) x 40,000= 1,200
60. A Net Loss (400)
61. C
62. B
Temporal Method:
AR CR 850,000
Inventories HR 575,000
Plant Assets HR 900,000
TOTAL ASSETS 2,325,000

63. D
All items at Current Rates: TOTAL 2,650,000

64. C
65. B
Item: AR 1M * ( 0.32- 0.33) 10,000
Instmnt: AP 1M (.305-.316)= 11,000
11,000* .980296 (10,783)

Net Amount 783

 Excel_Professional Services Inc.
Management Firm of Professional Review and Training Center (PRTC)
Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

First Preboard Examination on Auditing Problems

February 20, 2022
Suggested answers/solutions by OCAMPO/OCAMPO

PROBLEM NO. 1 - Baby Em Corporation

C&CE T&OR Inventories PPE Intangibles
Unadjusted balances 2,100,000 4,200,000 5,300,000 7,910,000 2,280,000
Add (deduct) adjustments:
Cash & cash equivalents
Item 1 (90,000) 90,000
Item 2 (360,000) 360,000
Item 3 - OK
Item 4 (33,000)
Item 5 - OK
Item 6 (100,000)
Item 7 (65,000) 65,000
Item 8 (20,000) 20,000
Inventories
Item 1 (52,000)
Item 2 (36,000)
Item 3 - OK
Item 4 104,400 (87,000)
Item 5 - OK
Item 6 (12,000)
Property, plant and equipment
Land held for a currently undetermined future use (1,200,000)
Intangible assets
Costs of training employees (280,000)
Research and development costs (880,000)
Organization costs (310,000)
Adjusted balances 1,432,000 4,479,400 5,113,000 6,710,000 1,170,000
(36-B) (37-D) (38-A) (39-D) (40-C)

PROBLEM NO. 2 - Line Corp.

Question No. 41 - B
Inventory per physical count 32,600 cases
x Unit cost of June 19 purchase 19.70 per case
Inventory of baked beans, 6/30 - at cost 642,220

Question No. 42 - C
Inventory per physical count 1,500 boxes
x Unit cost of June 15 purchase 38.45 per box
Inventory of plain flour, 6/30 - at cost 57,675

Question No. 43 - B
Baked beans Plain flour
Units on hand, June 1 35,000 62,500
Purchases 67,000 35,000
Purchase returns (1,000)
Sales (73,000) (95,000)
Sales returns 5,000
Units on hand, June 30 - per records 34,000 1,500
Units on hand, June 30 - per physical count 32,600 1,500
Shortage 1,400 -
x Unit cost 19.70 -
27,580 -

Question No. 44 - A
Quantity Cost NRV LCN
Baked beans 32,600 642,220 945,400 642,220
Plain flour 1,500 57,675 57,750 57,675
Total 699,895

Question No. 45 - A

Page 1 of 4 [Link] AP.1stPB5.22

PROBLEM NO. 3 - Ismo Corp.

Question No. 46 - A
Accumulated depreciation, 9/1/21 (P82,000 x .9 x 38/120) 23,370

Question No. 47 - A
Sales proceeds 73,000
Less carrying amount, 9/1/21
Cost 90,000
Acc. Dep. (P90,000 x .9 x 29/120) (19,575) 70,425
Gain (loss) on sale 2,575

Question No. 48 - C
Cost 70,000
Acc. Dep., 1/1/22 (P70,000 x .9 x 3/10) (18,900)
Carrying amount, 1/1/22 51,100
New motor 48,000
Carrying amount, 1/1/22 after replacement 99,100

Question No. 49 - B
Remaining beginning balance
[(P4,200,000 - P82,000 - P90,000 - P40,000 - P70,000) x .9 x .1] 352,620
Traded in, 9/1/21 (P82,000 x .9 x 2/120) 1,230
Sold, 9/1/21 (P90,000 x .9 x 2/120) 1,350
Retired, 1/1/22 (P40,000 x .9 x 6/120) 1,800
Repaired, 1/1/22 - before repair (P70,000 x .9 x 6/120) 3,150
Repaired, 1/1/22 - after repair (P99,100 x .9 x 6/108) 4,955
Acquired, 9/1/21 (P150,000 x .9 x 10/120) 11,250
New arm fitted, 4/1/22 (P12,000 x 3/180) 200
Total depreciation 376,555

Question No. 50 - D

PROBLEM NO. 4 - Peng Corporation

Question No. 51 - B
Present value of the note (P5M x .675) 3,375,000
Carrying amount of patent, 5/1/22 (P3,150,000 x 136/180) (2,380,000)
Gain on sale of patent 995,000

Question No. 52 - B
Legal expenses to obtain patent 720,000
Expense of drawing required by the patent office 102,000
Fees paid to the government patent office 150,000
Cost of patent 972,000

Note: Cost of defending the patent should be expensed

Question No. 53 - B
Metal used in the construction of the machine 480,000
Blueprints used to design the machine 192,000
Wages paid to the employees (P1,800,000 x 60%) 1,080,000
Cost of machine 1,752,000

Question No. 54 - B
Purchase price 100,000
Nonrefundable taxes 5,000
Legal costs incurred to register the trademark 10,500
Cost of trademark 115,500

Question No. 55 - D

Page 2 of 4 [Link] AP.1stPB5.22

PROBLEM NO. 5 - Mane Corp.

December
Nov. 30 Receipts Disb Dec. 31

Unadjusted bank balances 480,000 240,000 300,000 420,000

Undeposited collections:
November 30 100,000 (100,000)
December 31 140,000 140,000
Outstanding checks:
November 30 (150,000) (150,000)
December 31 120,000 (120,000)
Erroneous bank debit (90,000) 90,000
Deposits with loan payment (P725,000 x 80%) 580,000 580,000
NSF checks:
Returned in Nov., recorded in Dec. 10,000 (10,000)
Returned and recorded in Dec. (25,000) (25,000)
Returned in Dec., recorded in Jan. (29,000) 29,000
Unrecorded bank collection in Dec. (106,000) (106,000)
Anticipated loan proceeds from AR hypothecation
Nov. 30 sales (P180,000 x 80%) 144,000 (144,000)
Dec. 31 sales (P200,000 x 80%) 160,000 160,000
Anticipated loan payment from undeposited collections
Nov. 30 (P100,000 x 80%) (80,000) (80,000)
Dec. 31 (P140,000 x 80%) 112,000 (112,000)
Interest charge for bank loan in Dec. (38,000) 38,000

Unadjusted book balances 504,000 735,000 700,000 539,000

(56 - A) (57 - C) (58 - B) (59 - D)
Question No. 60 - B

PROBLEM NO. 6 - Lodi Corp.

Question No. 61 - C
Accounts receivable, 12/31/21 500,000
Add: Sales on account 3,120,000
Bad debt recoveries 2,160 3,122,160
Total 3,622,160
Less: Accounts collected during the year 3,008,000
Accounts written off 52,000
Bad debt recoveries 2,160 3,062,160
Accounts receivable, 12/31/22 - before write-off of accounts over 180 days 560,000
Less accounts over 180 days (P560,000 x 2%) 11,200
Accounts receivable, 12/31/22 548,800

Question No. 62 - D
Category Aging ratio AR Balance Rate Allowance
Less than 60 days 70% 392,000 2.00% 7,840
Between 61 and 120 days 18% 100,800 15.00% 15,120
Between 121 and 180 days 10% 56,000 50.00% 28,000
Over 180 days* 2% 11,200 -
100% 560,000 50,960

* Since the probability of collection is 0% the account is deemed

Question No. 63 - B
Allowance for doubtful accounts, 12/31/22 50,960
Add accounts written off (P52,000 + P11,200) 63,200
Total 114,160
Less: Allowance for doubtful accounts, 12/31/21 48,000
Bad debt recoveries 2,160 50,160
Doubtful accounts expense for 2022 64,000

Question No. 64 - B

Question No. 65 - C

Page 3 of 4 [Link] AP.1stPB5.22

PROBLEM NO. 7 - Rasta Corp.

Question no. 66 - D
Wigal Company (9,000 x P1) 9,000
Wigel Company (6,000 x P3) 18,000
Wigul Company (10,500 x P2) 21,000
Total dividend income in 2022 48,000

Question no. 67 - B
Wigal Company (9,000 x P20) 180,000
Wigel Company (6,000 x P22) 132,000
Treasury notes (P120,000 x 1.02) 122,400
CA of FA at FVTPL, 12/31/21 434,400

Question no. 68 - C
Fair value of FA at FVTPL, 12/31/22 (see no. 67) 434,400
Less CA before FV adjustment:
Cost of Wigal Company shares (9,000 x P16) 144,000
Cost of Wigel Company shares (6,000 x P33) 198,000
Cost of Treasury notes (P120,000 x 1.01) 121,200 463,200
Net unrealized gain (loss) (28,800)

Question no. 69 - C
Wigel shares sold, 3/23/22:
Selling price (6,000 shares x P17) 102,000
Less CA of shares sold 132,000 (30,000)
Treasury notes sold, 6/30/07
Selling price (P120,000 x 1.005) 120,600
Less CA of treasury notes 122,400 (1,800)
Gain (loss) on sale (31,800)

Question no. 70 - B
FV of Wigul shares, 12/31/22 (10,500 x P33) 346,500
Less cost of Wigul shares (10,500 x P29) 304,500
Net unrealized gain (loss) in equity 42,000

Page 4 of 4 [Link] AP.1stPB5.22