Elijah Joyce M.

Anilao

Accounting Review

PRELIMINARY QUESTIONS

Accounting Review Questions:

FAR

1. On January 1, 2020, Crest Company paid P3,800,000 for 35 percent of Sanki Company's
voting share capital. Crest's 35 percent stake in Sanki provided the ability to exercise significant
influence.

During 2020, Sanki earned P800,000 and paid dividend of P650,000.

Sanki reported earnings of P1,000,000 for the 6 months ended June 30, 2021, and P2,000,000
for the year ended December 31, 2021.

On July 1, 2020, Crest sold half of the investment in Sanki for P1,500,000 cash.

Sanki paid dividend of P1,000,000 on October 1, 2021.

The fair value of the retained investment is P1,600,000 on July 1, 2021, and P2,000,000 on
December 31, 2021.

The retained investment is to be held as financial asset at fair value through profit or loss.

What is the carrying amount of the investment in associate before disposal on June 30,2021?

a. 2,295,500
b. 3,340,000
c. 2,790,000
d. 4,202,500

ANSWER: D
 Acquisition cost, January 1,2020 3,800,000
Share in 2020 net income
280,000
(35% x 800,000)
TOTAL 4,080,000
Share in 2020 dividend
(227,500)
(35% x 650,000)
Carrying amount of investment, December
3,852,500
31,2020
Share in 2020 net income from January 1 to
June 30,2021 (35% x 1,000,000) 350,000

Carrying amount of investment, June 30,

4,202,500
2021

2.On the night of October 30, 2021, a fire destroyed most of the merchandise inventory of
Chronicles Company.

Except for partially damaged products that normally sell for P100,000 and had an estimated net
realizable worth of P25,000, and undamaged goods that regularly sell for P60,000, all goods
were entirely destroyed.

Inventory, January 1 660,000

Net purchases, January 1 through October 31 4,240,000

Net sales, January 1 through October 31 5,600,000

TOTAL 2020 2019 2018

Net Sales 12,750,000 6,300,000 4,050,000 2,400,000
Cost of goods 10,200,000 4,840,000 3,200,000 2,160,000
sold
Gross Income 2,550,000 1,460,000 850,000 240,000

What is the estimated amount of fire loss on September 30,2021?

 A. 465,000
B. 347,000
C. 515,000
D. 630,000

ANSWER: B

Average gross profit rate

20%
(2,550,000 / 12,750,000)
Cost ratio (100% - 20%) 80%

Inventory – January 1 660,000

Net Purchases 4,240,000
Goods available for sale 4,900,000
Cost of goods sold
(5,600,000 x 80%) (4,480,000)
Inventory - October 31 420,000
Less: undamaged goods (60,000 x 80%) (48,000)
Realizable value of damaged goods (25,000)
FIRE LOSS 347,000

3.Love Company reported the following information in relation to cash on December 31, 2021.

o Checkbook balance, P6,000,000.

o Undeposited collections, P750,000.
o A customer check amounting to P350,000 dated January 2, 2022, was included in the
December 31, 2021, checkbook balance.
o A customer check for P500,000 was deposited on December 22, 2021, and was reflected
in the checkbook balance, but the bank returned it due to a lack of funds.
o This check was redeposited on December 26, 2021, and two days later.
o A P800,000 check payable to supplier dated and recorded on December 30, 2021, was
mailed on January 16, 2022.
 o A petty cash fund of P50,000 comprised of coins and currencies for 5,000, petty cash
vouchers for 40,000 and refundable deposit for returnable containers for 5,000 on
December 31, 2021.
o A check of P40,000 was drawn on December 31, 2021, payable to Petty Cash.

What total amount should be reported as CASH on December 31, 2021?

a. 4,645,000
b. 6,545,000
c. 7,245,000
d. 7,445,000

ANSWER: C

Checkbook balance P6,000,000

Postdated customer check erroneously
included (350,000)
Undelivered check payable to supplier 800,000
Adjusted cash in bank 6,450,000
Cash on hand-undeposited collections 750,000
Petty cash fund 45,000
TOTAL CASH P7,245,000

4. Luna Company had an equipment with carrying amount of P6,000,000 at year-end:

Expected discounted net cash flows 5,280,000

Fair value of similar asset 5,450,000

Fair value of the asset when sold stand-alone 5,670,000

What amount should be reported as impairment loss for the current year?

a. P500,000
b. 350,000
c. 330,000
 d. 0

ANSWER: C

Carrying amount P6,000,000

Recoverable amount equal to fair value

assuming asset is sold stand-alone which

is higher than discounted net cash floes 5,670,000

IMPAIRMENT LOSS P 330,000

5. The Okasa Company was a retailer of boxed consumer goods. During the current year, the
company offered an unbreakable glass in exchange for two box tops and P50 as a promotion.
P210 was spent on the glass.

At the conclusion of the year, the organization predicted that 50 percent of the box tops would
be redeemed.

During the current fiscal year, the company sold 220,000 boxes of the product and redeemed
80,000 box tops.

What amount should be reported as estimated premium liability at year-end?

a. 3,000,000
b. 2,500,000
c. 2,400,000
d. 0

ANSWER: C

Outstanding
Box tops to be redeemed
(50% x 220,000) 110,000
Box tops redeemed 80,000 30,000
 Divided by 2
15,000
Multiplied by: net premium
cost
Cost of glass 210
Remittance from
customer (50) 160
Estimated liability at the
year end 2,400,000

6. Black Company had 380,000 ordinary shares and 100,000, 5 percent P100 par value
cumulative preference shares outstanding as of January 1, 2021.

In 2020 and 2021, no dividends were declared on the preference or ordinary shares.

The corporation declares an 80 percent share dividend on ordinary shares on March 1, 2022,
prior to the release of the financial statement for the year ended December 31, 2021.

In 2021, the company made a net profit of P12,750,000.

What amount should be reported as basic earnings per share?

a. 17.91
b. 18.91
c. 37.50
d. 35.50

Net income 12,750,000

Preference dividend (5% x 10,000,000) (500,000)
Net income to ordinary shares 12,250,000
Divide by ordinary shares (380,000 + 684,000
304,000)
Basic earnings per share 17.91
7. Blad Company offers an employee benefit plan that includes 10 paid vacation days and 10
paid sick days to compensate for absences. Sick days and vacation days can both be carried
over indefinitely.

Employees might choose to be paid instead of taking vacation days. Sick days that are not
taken, however, are not compensated.

The unadjusted balance of liability for compensated absences at the end of the year was
P250,000. At the conclusion of the year, the company calculated that 180 vacation days and 75
sick days were available. Employees are paid P500 per day on average.

At year-end, what amount of liability for compensated absences is required to be reported?

a. 250,000
b. 210,000
c. 150,000
d. 90,000

Liability for compensated absences, end of year

(180 vacation days x P500 per day) P90,000

AFAR

1. Staz, Yazumi, and Dek are partners in a company that is being liquidated. Profits and losses
are split into 50 percent, 25 percent, and 25 percent, accordingly. They had capital account
balances of P270,000, P112,000, and P121,000 when the liquidation commences. For P18,000,
the partnership just sold equipment with a historical cost of P45,000 and cumulative
depreciation of P21,000, respectively. After the transaction, what is the sum in Yazumi’s capital
account?

a. 62,000

b. 113,500

c. 112,000
d. 62,600

ANSWER: B

Yazumi’s capital balance P112,000

Equipment’s historical cost 45,000

Accumulated depreciation 21,000

24,000

(18,000)

6,000

Multiplied by: 25% 1,500

Yazumi’s capital account P 113,500

2. On October 1, 2021, YAMI Construction Co. was hired to construct a building for a contract
amount of P11,500,000, payable in five payments. One-fifth of the contract amount was
payable after each quarter of work was finished (as outlined in detail by the contract terms),
with the final payment due 10 days following acceptance of the completed project.

3/4 of the building had been completed by December 29, 2021, at which point the third billing
was issued in accordance with the contract's provisions (cash had been received on the
previous billings).

YAMI had disbursed a total of P3,800,000 for costs spent in 2021, with outstanding bills
payable for payment at year's end of 1,000,000. YAMI expected that an additional 2,200,000
would be required to complete the project.

Using percentage-of-completion (over time) method on an output basis proportional method,

the gross profit to be recognized in the 2021 income statement would be:

a. 1,050, 000
 b. 3,375, 000
c. 4, 500,000
d. 3,800,000

ANSWER: B

Contract price 11,500,000

Less: total estimated costs
Cost incurred to date(P3,800,000 + (4, 800,000)
1,000,000)
Estimated cost to complete (2,200,000)
Estimated gross profit 4, 500,000
Multiplied by: percentage of completion- ¾
output
Recognized gross profit to date 3,375, 000
Less: Recognized gross profit in prior year 0
Recognized gross profit in 2021 P3,375, 000

3. Damao is a company that sells fast-food franchises. Damao obtains P180,000 from a new
franchisee for providing initial training, equipment, and furnishings, all of which would sell for
P180,000 if sold separately. Damao gets paid P45,000 a year for the use of the Damao name as
well as continuous consulting services (starting on the date the franchise is purchased). Asta
became a Damao franchisee on March 1, 2021, and she finished training and opened for
business on May 1, 2021.

Damao’s agreement with Asta will generate how much revenue in 2021?

a. P180,000
b. P45,000
c. 210,000
d. 99,000

Contract price P180,000

Franchise fee
(8/12 x P45,000) 30,000

Total revenue 210,000

4. In Cebu, Mahou maintains a sales agency. Revenues and expenses for the agency are
recorded in separate agency accounts, and the agency's and the home office's operating results
are generated at the end of each month. The home office paid P50,000 for advertising charges
on behalf of the agency in October 2021, and this recorded as follows:

a. Cebu agency 50,000

Cash. 50,000

b. Advertising expense 50,000

Cash 50,000

C. Accounts receivable-Cebu agency 50,000

Cash 50,000

d. Advertising expense-Cebu agency 50,000

Cash 50,000

5. Yuna Co. purchased 80 percent of Luna Co.'s outstanding shares on January 1, 2021, for a
price that included P25,000 in excess due to land undervaluation.

On the 31st of December 2021. On the same date, Yuna Co. possessed inventory that
comprised P28,000 in products purchased from Luna Co. at 130 percent of its cost. Meanwhile,
Luna Co. has inventory that include P21,000 worth of products obtained from Yuna Co. at 120
percent of its original cost.

Non-controlling interest of P82,420 was reported in the consolidated balance sheet of

December 31, 2021. Yuna Co recorded a profit of P215,600 in 2021, calculated using the equity
method. Net income from non-controlling interest was P35,670.

Compute the equity in subsidiary income for year 20x4.

 a. 102,220
b. 139,180
c. 105,740
d. 138,240

ANSWER: B

Yuna Co’s share in the subsidiary net income:

Non-controlling interest net income P35,670
Yuna Co. [(28,000 – (28,000 / 130%)] x 1,292.31
20%
Total 36,962.31
Divided by Non-controlling interest 20%
percentage
Luna Co’s net income 184,811.55
Multiplied by Non-controlling interest 80%
percentage
Total 147,849.24
Less: unrealized profit in the ending
inventory
Yuna Co[(28,000 – (28,000 / 130%)] x (5,169.23)
80%
Luna Co [(21,000 – (21,000 / 120%)] x (3,500)
100%
Balance of Equity in Subsidiary Account for P139,180
2021

6. Izu and Yumi formed a joint arrangement to acquire and sell a special type of merchandise.
Izu is to manage the joint arrangement and to furnish the capital. The joint operations are to
share equally any gain or loss on the joint operations. On April 1, 2021, Yumi sent Izu P20,000
cash, which was all used to purchase merchandise. Izu paid freight of P170 on the merchandise
purchased. On April 27, one half of the merchandise was sold for P8,800 cash. Izu paid the cost
of delivering merchandise to customers which amounted to P260. No further transactions
occurred until the end of the month.
The profit (loss) Joint Arrangements of the joint arrangement for of April 2021 is.

a. (1,565)
b. 1,862
c. 1,580
d. None

Inventory in Joint Operation

Purchases P20,000 P8,800 Sales
Freight-in 170 10,085 unsold
Freight-out 260 (20,000 + 170) x 1/2
P20,450 P 18,885
(P 1,565)

7. Using the same information in No. 6, the account of Yumi in the books of Izu shows a
debit(credit) balance on April 30, 2021, after recognizing the profit (loss) on the uncomplete
joint arrangement.

a. (P 19,217)

b. 19,950

c. 18,850

d. zero

Yumi Capital
P20,000
(782.50) loss
P 19,217. 50 to Yumi

MAS

1. In its manufacturing process, the DAYAG Company employs 25,000 units. Cost to make a part
consists of direct material, P21; direct labor, P18; variable overhead, P15; and applied fixed
overhead, P45. For this part, DAYAG has received a P45 quote from a potential supplier. If
 DAYAG purchases the part, 80 percent of the fixed overhead will remain in place. The DAYAG
Company might do better if

a. P50,000 to manufacture the part.

b. P150,000 to buy the part.
c. P450,000 to buy the part.
d. P160,000 to manufacture the part.

ANSWER: C

Cost to make: P45/unit X 25,000 units = P 1,125,000

Cost to manufacture: (21+18+15+9)= P 63/unit

Incremental difference in favor of buying: P18/unit X 25,000 units = P450,000

2. Miguel Company produces a P20 per unit western-style hat. This is the company's only product, and
the break-even point is expected to be 75,000 units in the near future. What is the predicted
contribution margin ratio if fixed costs are expected to be P180,000?

a. 80 percent
b. 12 percent
c. 20 percent
d. 40 percent

ANSWER: B

Fixed Costs:

Contribution Margin at Breakeven Point

= P180,000

Breakeven Sales:
 75,000 X 20 = P1,500,000

Contribution Margin Ratio: (P250,000/1,1250,000)

= 12%

3. Myra Company is currently losing P15,000 every month. A special order for 5,000 pieces of a
product that ordinarily sells for P35 per unit has been received by the sales manager. Direct material
costs P15; direct labor costs P10; variable overhead costs P5; applicable fixed overhead costs P4; and
variable selling expenses costs P6. The special order would allow a little lower grade of direct material
to be used, cutting the price per unit by P2.50 and lowering selling expenditures by P1. What sales
price must be quoted for each of the 5,000 units if Myra wants this special order to increase the firm's
overall net profits to P10,000?

a. P37.50
b. P24.50
c. P27.50
d. P34.00

ANSWER: A

In order to increase income to P10,000, there must be an increase of P25,000 or P5 per unit.

Direct materials P 12.50

Direct Labor 10.00
Variable Overhead 5.00
Variable Selling 5.00
Exp
Production Costs P32.50
Additional profit
per unit
5.00
 Sales price/unit P37.50

=====

4. Maya Company is divided into three divisions: A, B, and C. The income statement for Division A for
the year ended December 31 reveals the following:

Sales P1,000,000 
Cost of goods sold   (800,000)
Gross profit P 200,000 
Selling expenses P100,000
Administrative expenses  250,000   (350,000)
Net loss P (150,000)

The cost of products sold is made up of 75% variable and 25% fixed costs. If the division is
closed, 60% of the fixed costs can be avoided. If Division A were to be ELIMINATED, all of the
selling expenditures would be ELIMINATED as well. 90% of administrative costs are covered by
corporate costs. Maya's income would decrease by _____ if Division A was eliminated.
a. increase by P150,000.
b. decrease by P 75,000.
c. decrease by P155,000.
d. decrease by P215,000.

ANSWER: C

Sales foregone P(1,000,000)

COGS avoided
Variable P600,000
Fixed 120,000 720,000
 Selling Expense Avoided 100,000
Administrative Expense Avoided 25,000
Decrease in income P( 155,000)

5. In May, 250,000 units of Product AGAPE are expected to be produced. 5 lbs. of raw material are
required for each unit of ANGAPE. The following are the estimated beginning and ending materials
inventories for May:
Beginning inventory: 25,000 lbs.
Ending inventory: 22,000 lbs.
How many lbs. of material should be purchased during May?
a. 1,272,000
b. 208,000
c. 1,247,000
d. 416,000

ANSWER: C

Ending inventory--May 22,000 lbs.

Production needs: 250,000 units X 5 1,250,000 lbs.
lbs/unit
Inventory needed 1,272,000 lbs.
Beginning inventory--May (25,000) lbs.
Total purchase requirements 1,247,000 lbs.

6. The following are Roblox Inc.'s projected sales for the first quarter of the year:

JANUARY FEBRUARY MARCH

 UNITS: 55,000 35,000 25,000

The corporation has a policy that each period's ending inventory must equal 15% of the
following period's revenues. What amount of production should be anticipated for February,
assuming the corporation follows this policy?
a. 24,300 units
b. 24,700 units
c. 25,000 units
d. 33,500 units

ANSWER: D

Ending Inventory, February 3,750 units

February Sales 35,000 units
Requirements for Month 38,750 units
Less Beginning Inventory, (5,250) units
February
Production scheduled for 33,500 units
February

7. An investment project is predicted to generate P50,000 in annual revenue, with P12,000 in annual
fixed costs and a P8,000 initial investment. What is the payback period in years if the cost of goods
sold is 70% of sales?
a. 3.33
b. 5.00
c. 3.30
d. 1.25

ANSWER: A

Net cash flow = P50,000 – P12,000 -

P2,400
Net cash flow = P35,600
P8,000/P2,400 = 3.33 years

AUDIT

1. The physical count of a retailer's inventory was higher than the permanent records indicated.
Which of the following could account for the disparity?

A. Inventory items had been counted, but the tags that had been placed on them had not been
removed and recorded on the inventory accumulation sheets.

B. At the time of the inventory count, an item purchased "FOB shipping point" had not yet
arrived and was not reflected in the perpetual records.

C. Credit memos for a number of items returned by customers had gone unnoticed.

D. For some items returned to the retailer's suppliers, no journal entry had been made in the
retailer's books.

2. Which of the following statements about the auditor's participation in the physical inventory
count is false?

A. Attendance at the physical inventory count should always be part of a financial statement
audit.

B. If the auditor is unable to attend the physical inventory count on the scheduled day owing to
unforeseen circumstances, he or she should conduct or observe certain physical counts on a
different date and, if necessary, perform per form audit processes on intervening transactions.

C. If attendance is not possible due to variables such as the type and location of the inventory,
the auditor should assess whether alternative processes give sufficient relevant audit evidence
of existence and condition to establish that a scope limitation is not necessary.
D. Third-party inventories (for example, inventories in public warehouses) can be verified by
receiving direct confirmation from the custodians, although depending on the materiality of the
amount involved, further procedures may be required.

3. An employee of your CLIENT provided the following bank reconciliation to you in connection
with your audit of the BEELZEE COMPANY on December 31, 2020:

Balance per bank P30,534

Deposits in transit 37,856

P68,390

Outstanding checks 42,756

Balance per books P25.634

On January 15, 2021, you acquired the bank statement and canceled checks from the bank as
part of your verification. The company's records show that checks issued from January 1 to
January 15, 2021, totaled P30,109. The total amount of checks returned by the bank on January
15, 2021, was P78,865. The bank did not refund P10,500 of the checks outstanding on
December 31, 2020, with the January 15, 2021, bank statement; and the bank did not return
P7,500 of the checks issued in January 2021, according to the company's documents.

Based on the above data, calculate the disbursements per company records.

The difference between the disbursements computed and as reported is

a.24,000

b. 10,000

c.25,000

d. 18,000

ANSWER: A

Outstanding checks, January 15

From December or before P10,500
 From January 7,500 P18,000
Add: Disbursements per bank statement 78,865
Total 96,865
Less: Outstanding checks, December 31 42,756
Disbursements per books as computed P 54,109

Disbursements per books as computed P 54,109

Disbursements per books as reported 30,109
Difference in disbursements P 24,000

4. The accounting records of the Blad Company reveal the following:

Accounts receivable, Jan. 1, 2021, P2,500,000
Allowance for credit loss, Jan. 1, 2021 (credit) 110,000
Sales for the year 21,000,000
Collections from customers during the year 15,800,000
The following additional information was also obtained:
1. A P45,000 receivable from a customer whose account had been charged off as worthless the
previous year was included in the amount received from consumers.
2. Blad Company assessed that a P230,000 receivable from a client would not be collected, thus
management approved a write-off.
3. On December 2, 2021, a client completed its account by issuing a 12-percent, 6-month note
for P750,000.
4. On December 31, 2021, the Accounts Receivable amount comprises P900,000 in past due
accounts.
5. The entity estimates that 20% of past due accounts will not be collected, with a 5%
probability of current account losses.
The current assets section of Blad Company's statement of financial position on December 31,
2021, should include Accounts Receivable of
a. P 6,765,000
b. P 5,765,000
c. P 4,765,000
d. P 3,765,000
ANSWER: A

Accounts receivable, January 1 P2,500,000

Sales for 2021 21,000,000
Collections (15,800,000)
Recovery of accounts written off 45,000
Customer’s account written off (230,000)
Accounts settled by insurance note (750,000)
Accounts receivable, December 31 P 6,765,000

5. Using the same information in No. 4, what is the balance of the Allowance for credit loss
before adjustment on December 2021?

a. 30,000 debit

b. 30,000 credit

c. 75,000 debit

d. 75,000 credit

ANSWER: c

Allowance for credit loss, January 1 (credit) 110,000

Recovery of accounts written off 45,000
Accounts written off (230,000)
Allowance before adjustment, December (P 75,000)
31(debit)

6. Rimuru Corp. paid P380,000,000 for 30% of Shion Company's outstanding ordinary shares on
January 2, 2021. At the time of purchase, the book value of Shion Company's net assets
(shareholders' equity) was P580,000,000. Except for inventory and buildings, where fair values
surpassed book values by P13,500,000 and P121,500,000, respectively, for all financial
statement items, book values and fair values were the same. During the year 2021, all inventory
on hand at the time of purchase was sold. The structures have a 15-year remaining usable life
on average.
Shion Company earned P150,000,000 in net income for the year ending December 31, 2021,
and paid P35,000,000 in cash dividends. Rimuru's investment in affiliate has a fair value of
P300,000,000 as of December 31, 2021.

How much of the money spent on the acquisition of Shion Company's ordinary shares is due to
goodwill?

a. 380,000,000
b. 165,500,000
c. P715,000,000
d. 214,500,000

Purchase price P380,000,000

Less: fair value of Shion’s Company net assets
(P580,000,000 + 13,500,000 + 121,500,000 =
P715,000,000 x 30%) (214,500,000)
Goodwill P 165,500,000

7. Using the same information in No. 6, what is the investment balance on December 31, 2021?

a. P 408,020, 000

b. 380,000,000

c. 290,000,000

d.398,000,000

Purchase price P380,000,000

Share of net income (150,000,000 x 30%) 45,000,000
Cash dividends received (35,000,000 x 30%) (10,500,000)
Increase in cost of goods sold (13,500,000 x 30%) (4,050,000)
Additional depreciation (121,500,000 x 30% = (2,430,000)
36,450,000/15 yrs)
Investment balance, December 31, 2021 P 408,020, 000
TAX

1. Decedent was a Filipino citizen and a resident of Pasay City when he died, leaving behind the
following:

Rest house in Laguna inherited from his father during marriage P 3,500,000
Car received as gift from his mother before his marriage 1,000,000
Before his marriage, his mother gave him commercial land as a
gift. 5,000,000
Profits from commercial land 500,000
Building (additional property owned by the wife) 1,500,000
During the marriage, he receives income from his spouse's
exclusive property. 200,000
Jewelry owned before the marriage 300,000
His wife's clothes, which he bought with his own money 100,000
Other properties at the time of her death 1,000,000
Under the regime of conjugal partnership of gains, how much is the decedent's gross exclusive
properties?
a. P9,800,000
b. P8,600,000
c. P8,700,000
d. P10,300,000
ANSWER: A

Gross Estate Exclusive

Rest House in Laguna P 3,500,000
Car 1,000,000
Commercial land 5,000,000
Income from the commercial land
Income from exclusive property of spouse
Jewelry owned before the marriage 300,000
Gross Estate P 9,800,000

2. How much is the gross conjugal properties?

a. P7,700,000
b. P9,200,000
c. P1,500,000
d. P1,700,000

Gross Estate Conjugal

Rest House in Laguna
Car
Commercial land
Income from the commercial land 500,000
Income from exclusive property of spouse 200,000
Jewelry owned before the marriage
Other properties at the time of her death 1,000,000
Gross Estate P1,700,000

3. Under the regime of absolute community of property, how much is the decedent's gross
exclusive properties?
a. P2,800,000
b. P3,500,000
c. P3,800,000
d. P3,500,000

Gross Estate Exclusive

Rest House in Laguna P 3,500,000
Car
Commercial land
Income from the commercial land
Jewelry owned before the marriage
Other properties at the time of her death
Gross Estate P 3,500,000

4. Using the same assumption in the preceding number, how much is the gross conjugal
properties?
a. P7,500,000
b. P6,800,000
c. P7,800,000
d. P6,800,00

Gross Estate Common

 Rest House in Laguna
Car 1,000,000
Commercial land 5,000,000
Income from the commercial land 500,000
Jewelry owned before the marriage 300,000
Other properties at the time of her death 1,000,000
Gross Estate P7,800,000

5. Losses suffered by a decedent/estate include the following:

P1,000,000 loss owing to typhoon a day before the decedent's death
P800,000 loss owing to a shipwreck two (2) months after the decedent's death.
P1,800,000 robbery loss eight (8) months after the decedent's death
Swindling loss of 800,000 2 months before death
P2,250,000 in gambling losses before death
REQUIRED: How much is the deductible "losses" from the gross estate of the decedent?
A. 2,250,000
B. 1,800,000
C. 2,600,000
D. 3,250,000
ANSWER: C

Loss due to shipwreck, two (2) months after the decedent’s death P800,000
Robbery loss 1,800,000
Allowable Deduction P 2,600,000

6. Using the same assumption in the preceding number, how much is the deductible "losses"
from the gross estate of the decedent assuming the robbery loss was incurred 1% years after
the decedent's death?
A. 800,000
B. 1,000,000
C. P1,800,000
D. 2,600,000
ANSWER: A
 Loss due to shipwreck, two (2) months after the decedent’s death P800,000
Allowable Deduction P800,000

7. The following data were taken from the estate of Susan:

Claims against Myra (insolvent), P280,000, fully uncollectible.
Claims against Pom (insolvent), P550,000, 50% collectible.
Claims against a person who absconded, P300,000.
REQUIRED: Based on the data provided, determine the allowable deduction from Susan's gross
estate.
a. P280,000
b. P550,000
c. P300,000
d. P 555,000

ANSWER: D

Uncollectible receivable from Myra P280,000

Uncollectible receivable from Pom 275,000
TOTAL P 555,000

LAW

1. Allen donated his lot to Jeus because he thought that he was his illegitimate son. The
deed of donation was signed by both parties and acknowledged by them before a new
certificate of title to the lot was issued by the Register of Deeds. Later, Allen learned
that Jeus was not his son, but that of another man:
a. Allen can have the donation annulled on the ground of mistake of identity.
b. Allen can no longer annul the donation because a new certificate of title has already
been issued.
c. Allen cannot annul the donation because he freely entered into it.
d. Allen cannot annul the donation because disregarding it would be unfair to C.

ANSWER:

Allen can have the donation ANNULLED on the ground of mistake of identity.
According to Paragraph 2, Article 1331 of the Civil Code, "Mistake as to the identity or
qualifications of one of the parties will vitiate consent only when such identity or qualification
have been the principal cause of the contract".

In compliance with the law, the donation agreed by both parties should be rendered voidable.
The mistake of Jeus' identity as Allen's illegitimate son is a substantial mistake of fact, that is,
Allen would not have given his consent if he had known of the mistake.

Henceforth, Jeus being Allen's illegitimate son is the principal cause for the enforceability of the
donation of the lot, however, the discovery of the mistaken identity vitiated the consent.
Therefore, the contract of donation between Allen and Jeus is voidable and should be annulled
on the ground of mistake of identity.

2. Maria took a public bus on her way home. Although Maria paid for her fare, the bus
conductor did not issue her a ticket. Along the way, the bus met an accident causing a
slight injury to Maria and other passengers. If Maria is to recover damages from the bus
owner, the source of the owner's liability is?
A. Law
B. Quasi-delicts
C. Contract
D. Maria cannot recover any amount because no ticket was issued.

ANSWER:

The source of the liability is C, a contract.

As stated in Article 1305 "Contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render some service.

Above case involved a public utility vehicle which offers services to the public. The moment the
passenger accepted the offer, there was a meeting of minds which binds the two parties into
contract of carriage. Thus, obliging the party to bring Maria to her destination safely. Failure to
do so results to a breach of contract. Hence, both driver and operator are liable for damages.

Therefore, meeting of minds was manifested through Maria's acceptance of the offer upon
transportation service, which are to constitute the contract. Absence of a tangible agreement
doesn't excuse the owner for damages.

3. Unless title over the deposit has been vested on the State through escheat, does the
depositor has the perfect right to either reactivate or withdraw the funds in his or her
capacity as owner?

A. Yes, with proper compliance of all the requirements.

B. Yes, without compliance of requirements.

C. No since the account is already dormant.

D. No since the account is already a subject of escheat.

ANSWER:

Yes, the depositor has the perfect rights to reactivate or withdraw the account with proper
requirements compliance.

Pursuant to Section 3 Act No. 3936, "Whenever the Solicitor General shall be informed of such
unclaimed balances, he shall commence an action or actions in the name of the People of the
Republic of the Philippines in the Court of First Instance of the province or city where the bank,
building and loan association or trust corporation is located, in which shall be joined as parties
the bank, building and loan association or trust corporation and all such creditors or depositors.
All or any of such creditors or depositors or banks, building and loan association or trust
corporations may be included in one action. Service of process in such action or actions shall be
made by delivery of a copy of the complaint and summons to the president, cashier, or
managing officer of each defendant bank, building and loan association or trust corporation and
by publication of a copy of such summons in a newspaper of general circulation, either in
English, in Filipino, or in a local dialect, published in the locality where the bank, building and
loan association or trust corporation is situated, if there be any, and in case there is none, in the
City of Manila, at such time as the court may order. Upon the trial, the court must hear all
parties who have appeared therein, and if it be determined that such unclaimed balances in any
defendant bank, building and loan association or trust corporation are unclaimed as
hereinbefore stated, then the court shall render judgment in favor of the Government of the
Republic of the Philippines, declaring that said unclaimed balances have escheated to the
Government of the Republic of the Philippines and commanding said bank, building and loan
association or trust corporation to forthwith deposit the same with the Treasurer of the
Philippines to credit of the Government of the Republic of the Philippines to be used as the
National Assembly may direct."

In compliance with the law, if the dormancy reaches 10 years and there has been no
reactivation or withdrawal as above mentioned, the deposit accounts are classified as
unclaimed balances subject to escheat in favor of the Government. If after the proceedings the
property remains without a lawful owner interested to claim it, the property shall be reverted
to the State to forestall an open invitation to self-service by the first comers. However, if
interested parties have come forward and laid claim to the property, the courts shall determine
whether the credit or deposit should pass to the claimants or be forfeited in favor of the State.

Thus, before title is vested on the State, the funds would still be recoverable.

4. Anna maintains a savings deposit in the amount of Php 2 million with ABC Bank
Corporation. After a closure order from the Monetary Board, the sum is broken down
and transferred in the names of Elsa, Kristoff, and Olaf. Does splitting of deposits occur?
A. Yes, whenever the deposit account exceeds 500,000 and transferred in the names of
natural persons with beneficial ownership.
B. Yes, whenever the deposit account exceeds 500,000, transferred and broken down
into persons with no beneficial ownership.
C. No, the deposit account does not exceed 2,000,000.
 D. No, the deposit account does not exceed 20,00,000 and transfers to natural persons
with beneficial ownership.

ANSWER:

Yes, whenever the deposit account exceeds 500,000, transferred and broken down into persons
with no beneficial ownership.

Pursuant to Section 21, paragraph (f)(5) of R.A. 3591,

“Splitting of deposits occurs whenever a deposit account with an outstanding balance of more
than the statutory maximum amount of insured deposit maintained under the name of natural
or juridical persons is broken down and transferred into two (2) or more accounts in the
name/s of natural or juridical persons or entities who have no beneficial ownership on
transferred deposits in their names within one hundred twenty (120) days immediately
preceding or during a bank-declared bank holiday, or immediately preceding a closure order
issued by the Monetary Board of the Bangko Sentral ng Pilipinas for the purpose of availing of
the maximum deposit insurance coverage;”

In accordance with the law, whenever a depositor's deposit account exceeds 500,000 pesos,
broken down and transferred into more accounts in the names of natural persons who have no
beneficial ownership on transferred deposits within 120 days immediately preceding or during
a bank-declared holiday or immediately preceding a closure order of the Monetary Board of the
BSP for the purpose of availing of the maximum deposit insurance coverage, splitting deposits
occur.

Thus, in Anna's case splitting deposits occur.

5. In an action filed by the bank to recover the money transmitted by mistake, can the
bank be allowed to present the accounts which it believed were responsible for the
acquisition of the money?
A. Yes, it is allowed where the money deposited is the subject matter of bribery.
 B. Yes , it is allowed where the money deposited is the subject matter of litigation.
C. No, it is not allowed since the money is not the subject of bribery.
D. No, it is not allowed since the money is not the subject of litigation.

ANSWER:

Yes, banks are allowed wherever the money deposited is the subject matter of litigation.

Pursuant to Section 2 of R.A. 1405 , "All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds issued by the Government of the
Philippines, its political subdivisions and its instrumentalities, are hereby considered as of an
absolutely confidential nature and may not be examined, inquired or looked into by any person,
government official, bureau or office, except upon written permission of the depositor, or in
cases of impeachment, or upon order of a competent court in cases of bribery or dereliction of
duty of public officials, or in cases where the money deposited or invested is the subject matter
of the litigation."

In accordance with the law, an action filed by the bank to recover the money transmitted by
mistake, necessarily, an inquiry into the whereabouts of the amount extends to whatever is
concealed by being held or recorded in the name of the persons other than the one responsible
for the illegal acquisition.

Therefore, R.A. 1405 allows the disclosure of bank deposits in cases where the money
deposited is the subject matter of litigation.

6. Ian made a Promissory note “I promise to pay Mark or order P10, 000. sdg Ian. Mark
however lost the instrument. Andrew found it and simulated the signature of Mark and
negotiated the instrument to Richard. Richard negotiated it to Claire, a holder in due
course. Who are liable to the holder?
A. Andrew
B. Andrew and Richard
C. Mark and Richard
 D. Ian and Mark

ANSWER:

Both Andrew and Richard are liable to Claire, the holder.

Pursuant to the following sections of the Civil Code of the Philippines: Sec. 18. Liability of
person signing in trade or assumed name. - No person is liable on the instrument whose
signature does not appear thereon, except as herein otherwise expressly provided. But one
who signs in a trade or assumed name will be liable to the same extent as if he had signed in his
own name.

Sec. 23. Forged signature; effect of. - When a signature is forged or made without the authority
of the person whose signature it purports to be, it is wholly inoperative, and no right to retain
the instrument, or to give a discharge therefore, or to enforce payment thereof against any
party thereto, can be acquired through or under such signature, unless the party against whom
it is sought to enforce such right is precluded from setting up the forgery or want of authority.

Sec. 65. Warranty where negotiation by delivery and so forth. — Every person negotiating an
instrument by delivery or by a qualified indorsement warrants:

(a) That the instrument is genuine and in all respects what it purports to be;

(b) That he has a good title to it;

(c) That all prior parties had capacity to contract; (d) That he has no knowledge of any fact
which would impaire the validity of the instrument or render it valueless. But when the
negotiation is by delivery only, the warranty extends in favor of no holder other than the
immediate transferee. The provisions of subdivision (c) of this section do not apply to a person
negotiating public or corporation securities other than bills and notes.

Sec. 66. Liability of general indorser. - Every indorser who indorses without qualification,
warrants to all subsequent holders in due course:

a. The matters and things mentioned in subdivisions (a), (b), and (c) of the next preceding
section; and (b) That the instrument is, at the time of his indorsement, valid and subsisting;
And, in addition, he engages that, on due presentment, it shall be accepted or paid, or both, as
the case may be, according to its tenor, and that if it be dishonored and the necessary
proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any
subsequent indorser who may be compelled to pay it.

Based on the foregoing statement, under sec. 23, Richard is precluded from setting up the
defense of forgery. This is because, under sec. 65 and 66, an indorser warrants that an
instrument is genuine and in all respects what it purports it to be. In other words, when Richard
negotiated the note to Claire, in effect, he said, the instrument is genuine, and it is valid. As to
Andrew being the forger, he is guilty of a criminal offense and is liable for all the consequence
of his criminal act. But, more than that, under sec. 18 as an exception to the general rule, the
forger is liable as he is deemed to have signed under a trade name or assumed name. Thus, the
forger has the same warranty as the general indorser. Otherwise, the forger would be
occupying a position better than of a general indorser.

Henceforth, in conformity with the given sections both Andrew and Richard have a liability
against the holder.

7. When may the Anti- Money Laundering Council (AMLC) perform an inquiry into deposits
of a person?
a. For purposes of determining his liabilities.
b. To determine his assets with proper court order.
c. Upon order of the court when there is probable cause that the deposits are related to
crime of unlawful activities defined in R.A. 9194
d. When there is written consent of the depositor.

ANSWER:

AMLC may perform deposits inquiry upon order of the court when there is probable cause that
the deposits are related to crime of unlawful activities defined in R.A. 9194.
Pursuant to Section 11 of R.A 9106, "Notwithstanding the provisions of Republic Act No. 1405,
as amended; Republic Act No. 6426, as amended; Republic Act No. 8791, and other laws, the
AMLC may inquire into or examine any particular deposit or investment with any banking
institution or non-bank financial institution upon order of any competent court in cases of
violation of this Act when it has been established that there is probable cause that the deposits
or investments involved are in any way related to a money laundering offense: Provided, That
this provision shall not apply to deposits and investments made prior to the effectivity of this
Act."

In compliance with the law, when there is an unreasonable doubt that the deposit or
investments are involved or related to any money laundering offense section 11 gave AMLC to
examine or inquire into the particular account upon the order of competent courts.

Thus, AMLC may inquire into the account upon the order of competent court.