SVFC BS Accountancy - 7th Set Online Resources SY20-19 1st Semester PDF

SAINT VINCENT DE FERRER COLLEGE AUGUST 2019
BS ACCOUNTANCY (1st semester SY 2020-2019) Part 7

ONLINE RESOURCES
AUDITING THEORY
I. Topic(s):
Internal Control
II. Learning Objective(s):

Understand concepts about internal control.
III. Rundown
http://www.aasc.org.ph/downloads/PSA/PSA.php
The auditor should obtain an understanding of the accounting and internal control systems sufficient to
plan the audit and develop an effective audit approach.
Accounting system means the series of tasks and records of an entity by which transactions are processed
as a means of maintaining financial records. Such systems identify, assemble, analyze, calculate, classify,
record, summarize and report transactions and other events.
Internal Control System means all the policies and procedures (internal controls) adopted by the
management of an entity to assist in achieving management’s objective of ensuring, as far as
practicable,:
 orderly and efficient conduct of its business, including adherence to management policies;
 safeguarding of assets;
 prevention and detection of fraud and error;
 accuracy and completeness of the accounting records; and
 timely preparation of reliable financial information.
The internal control system extends beyond those matters which relate directly to the functions of the
accounting system.
Internal Control Components

(a) The control environment;
(b) The entity’s risk assessment process;
(c) The information system, including the related business processes, relevant to financial reporting,
and communication;
(d) Control activities; and
(e) Monitoring of controls.
Control environment
The control environment includes the attitudes, awareness, and actions of management and those charged
with governance concerning the entity’s internal control and its importance in the entity. The control
environment also includes the governance and management functions and sets the tone of an organization,
influencing the control consciousness of its people. It is the foundation for effective internal control,
providing discipline and structure.
The control environment encompasses the following elements:

 Communication and enforcement of integrity and ethical values.
 Commitment to competence.
 Participation by those charged with governance.
 Management’s philosophy and operating style.
 Organizational structure.
 Assignment of authority and responsibility.
 Human resource policies and practices.
Entity’s risk assessment process
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Copyright of Prof. Hector U. Santos Jr., CPA, MBA
This online resource is intended solely to whom it is authorized to receive it. If you are not the intended recipient you are hereby notified that
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An entity’s risk assessment process is its process for identifying and responding to business risks and the
results thereof. For financial reporting purposes, the entity’s risk assessment process includes how
management identifies risks relevant to the preparation of financial statements that are presented fairly, in
all material respects in accordance with the entity’s applicable financial reporting framework, estimates
their significance, assesses the likelihood of their occurrence, and decides upon actions to manage them.
Risks can arise or change due to circumstances such as the following:

 Changes in operating environment. Changes in the regulatory or operating environment can result in
changes in competitive pressures and significantly different risks.
 New personnel. New personnel may have a different focus on or understanding of internal control.
 New or revamped information systems. Significant and rapid changes in information systems can
change the risk relating to internal control.
 Rapid growth. Significant and rapid expansion of operations can strain controls and increase the risk
of a breakdown in controls.
 New technology. Incorporating new technologies into production processes or information systems
may change the risk associated with internal control.
 New business models, products, or activities. Entering into business areas or transactions with which
an entity has little experience may introduce new risks associated with internal control.
 Corporate restructurings. Restructurings may be accompanied by staff reductions and changes in

supervision and segregation of duties that may change the risk associated with internal control.
 Expanded foreign operations. The expansion or acquisition of foreign operations carries new and
often unique risks that may affect internal control, for example, additional or changed risks from
foreign currency transactions.
 New accounting pronouncements. Adoption of new accounting principles or changing accounting

principles may affect risks in preparing financial statements.
Information system, including the related business processes, relevant to financial reporting, and
communication
An information system consists of infrastructure (physical and hardware components), software, people,
procedures, and data. Infrastructure and software will be absent, or have less significance, in systems that
are exclusively or primarily manual.
The information system relevant to financial reporting objectives, which includes the financial reporting
system, consists of the procedures and records established to initiate, record, process, and report entity
transactions (as well as events and conditions) and to maintain accountability for the related assets,
liabilities, and equity.
Accordingly, an information system encompasses methods and records that:
 Identify and record all valid transactions.

 Describe on a timely basis the transactions in sufficient detail to permit proper classification of
transactions for financial reporting.
 Measure the value of transactions in a manner that permits recording their proper monetary value in
the financial statements.
 Determine the time period in which transactions occurred to permit recording of transactions in the
proper accounting period.
 Present properly the transactions and related disclosures in the financial statements.
Communication involves providing an understanding of individual roles and responsibilities pertaining to

internal control over financial reporting. It includes the extent to which personnel understand how their
activities in the financial reporting information system relate to the work of others and the means of
reporting exceptions to an appropriate higher level within the entity. Open communication channels help
ensure that exceptions are reported and acted on.
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Control activities
Control activities are the policies and procedures that help ensure that management directives are carried
out, for example, that necessary actions are taken to address risks that threaten the achievement of the
entity’s objectives.
Generally, control activities that may be relevant to an audit may be categorized as policies and
procedures that pertain to the following:
 Performance reviews.
 Information processing.
 Physical controls.
 Segregation of duties.
Monitoring of controls
Management’s monitoring of controls includes considering whether they are operating as intended and
that they are modified as appropriate for changes in conditions. Monitoring of controls may include
activities such as management’s review of whether bank reconciliations are being prepared on a timely
basis, internal auditors’ evaluation of sales personnel’s compliance with the entity’s policies on terms of
sales contracts, and a legal department’s oversight of compliance with the entity’s ethical or business
practice policies.
Inherent Limitations of Internal Controls
1. Management’s usual requirement that the cost of an internal control does not exceed the expected
benefits to be derived.
2. Most internal controls tend to be directed at routine transactions rather than non-routine transactions.
3. The potential for human error due to carelessness, distraction, mistakes of judgment and the
misunderstanding of instructions.
4. The possibility of circumvention of internal controls through the collusion of a member of
management or an employee with parties outside or inside the entity.
5. The possibility that a person responsible for exercising an internal control could abuse that
responsibility, for example, a member of management overriding an internal control.
6. The possibility that procedures may become inadequate due to changes in conditions, and compliance
with procedures may deteriorate.
Accounting and Internal Control Assessment

1st Understanding of accounting and internal control system
2nd Plan the assessed level of control risk
3rd Performance of tests of controls (if appropriate)
th
4 Reassessment of control risk
5th Final assessment of control risk
(1st) Understanding of Accounting and Internal Control Systems

In the audit of financial statements, the auditor is only concerned with those policies and
procedures within the accounting and internal control systems that are relevant to the financial
statement assertions. The understanding of relevant aspects of the accounting and internal control
systems, together with the inherent and control risk assessments and other considerations, will
enable the auditor to:
(a) identify the types of potential material misstatements that could occur in the financial
statements;
(b) consider factors that affect the risk of material misstatements; and
(c) design appropriate audit procedures.
The nature, timing and extent of the procedures performed by the auditor to obtain an understanding of
the accounting and internal control systems will vary with, among other things:
 The size and complexity of the entity and of its computer system.
 Materiality considerations.
 The type of internal controls involved.
 The nature of the entity’s documentation of specific internal controls.
 The auditor’s assessment of inherent risk.
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 Experience gained from prior audits.
Procedures in Obtaining Understanding

1. Make inquiries of appropriate company personnel
2. Inspect documents and records
3. Observe the company’s activities and operations
4. Walk-through
Documentation of Understanding
The auditor should document his understanding of internal control. The extent of documentation is a
matter of the CPA’s judgment and the form of documentation depends upon his preference and skills.
1. Narrative descriptions 3. Flowcharts
2. Internal control questionnaires (ICQ) 4. Checklists
(2nd) Preliminary Assessment of Control Risk

The preliminary assessment of control risk is the process of evaluating the effectiveness of an entity’s
accounting and internal control systems in preventing or detecting and correcting material misstatements.
There will always be some control risk because of the inherent limitations of any accounting and internal
control system.
After obtaining an understanding of the accounting and internal control systems, the auditor should make
a preliminary assessment of control risk, at the assertion level, for each material account balance or class
of transactions.
The auditor ordinarily assesses control risk at a high level for some or all assertions when:
(a) the entity’s accounting and internal control systems are not effective; or
(b) evaluating the effectiveness of the entity’s accounting and internal control systems would not
be efficient.
The preliminary assessment of control risk for a financial statement assertion should be high unless the
auditor:
(a) is able to identify internal controls relevant to the assertion which are likely to prevent or detect
and correct a material misstatement; and
(b) plans to perform tests of control to support the assessment.
(3rd) Test of Controls

If appropriate, tests of control are performed to obtain audit evidence about the effectiveness of the:
(a) design of the accounting and internal control systems, that is, whether they are suitably
designed to prevent or detect and correct material misstatements; and
(b) operation of the internal controls throughout the period.
Procedures for Performing Tests of Controls

1. Inspection 3. Observation 5. Walk-through
2. Inquiry 4. Reperformance
Required Documentation
Assessed Control Risk
High (Maximum) Less than high (Below Maximum)

Understanding of ICS Required Required
Tests of Controls Required Required
Assessment of Control Risk Required Not required
Reason for assessment Not required Required
(4th) Reassessment of control risk

Based on the results of the tests of control, the auditor should evaluate whether the internal controls are
designed and operating as contemplated in the preliminary assessment of control risk. The evaluation of
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deviations may result in the auditor concluding that the assessed level of control risk needs to be revised.
In such cases, the auditor would modify the nature, timing and extent of planned substantive procedures.
(5th) Final Assessment of Control Risk

Before the conclusion of the audit, based on the results of the substantive procedures and other audit
evidence obtained by the auditor, the auditor should consider whether the assessment of control risk is
confirmed.
Communication of Weaknesses
As a result of obtaining an understanding of the accounting and internal control systems and tests of
control, the auditor may become aware of weaknesses in the systems. The auditor should make
management aware, as soon as practical and at an appropriate level of responsibility, of material
weaknesses in the design or operation of the accounting and internal control systems, which have come to
the auditor’s attention. The communication to management of material weaknesses would ordinarily be
in writing. However, if the auditor judges that oral communication is appropriate, such communication
would be documented in the audit working papers. It is important to indicate in the communication that
only weaknesses which have come to the auditor’s attention as a result of the audit have been reported
and that the examination has not been designed to determine the adequacy of internal control for
management purposes.
IV. Recommended Reference(s):

1. Text Book - Auditing Theory Latest Edition by Salosagcol
2. Text Book – Assurance Principle by Cabrera
3. Text Book Auditing & Assurance Services - David Ricchiute
4. Philippine Standards on Auditing Compilations
5. http://www.aasc.org.ph/downloads/PSA/PSA.php
6. Internet
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MANAGEMENT ADVISORY SERVICES
I. Topic(s):
Profit Planning
Flexible Budget and Performance Analysis
II. Learning Objective(s)

(after studying the topics, you should be able to):
Profit Planning
1 Understand why organizations budget and the processes they use to create budgets.
2 Prepare a sales budget, including a schedule of expected cash collections.
3 Prepare a production budget.
4 Prepare a direct materials budget, including a schedule of expected cash disbursements for
purchases of materials.
5 Prepare a direct labor budget.
6 Prepare a manufacturing overhead budget.
7 Prepare a selling and administrative expense budget.
8 Prepare a cash budget.
9 Prepare a budgeted income statement.
10 Prepare a budgeted balance sheet.
Flexible Budget and Performance Analysis

1 Prepare a flexible budget.
2 Prepare a report showing activity variances.
3 Prepare a report showing revenue and spending variances.
4 Prepare a performance report that combines activity variances and revenue and spending
variances.
5 Prepare a flexible budget with more than one cost driver.
6 Understand common errors made in preparing performance reports based on budgets and
actual results.
III. Rundown
1. Please watch below link to know and understand the topic
https://www.youtube.com/watch?v=-6lnN7CZ6V8
https://www.youtube.com/watch?v=gg4xnp7OqTw

1. Managerial Accounting by Garrison
2. Managerial Accounting by Kieso Weyganth
3. Managerial Accounting by local authors
4. Internet
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THEORY OF ACCOUNTS
I. Topic(s):
Property, Plant and Equipment / Depreciation and Depletion
II. Learning Objectives:

Understand their and concepts of the following:
Property, Plant and Equipment (PPE) and its related depreciation/depletion methods
III. Rundown
Please read the latest textbook version of “Financial Accounting” by Valix
Important things to remember
- are tangible assets that are held for use in production or supply of goods or services for
rental to others, or for administrative purposes, and are expected to be used during more than one
period.
Characteristics of PPE:
1. Tangible asset
2. Used in business
3. Used over a period of more than 1 year
Examples of PPE
1. Property not subject to depreciation (land as plant site)
2. Property subject to depreciation (equipment, machinery, furniture & fixtures, etc)
3. Property subject to depletion (timber, oil, mining lands and leases)
Recognition of PPE
- cost of an item of PPE shall be recognized as an asset when it meet the 2 criteria:
a. It is probable that future economic benefits associated with the asset will flow
to the entity.
b. The cost of an asset can be measured reliably
Measurement @ Recognition
- PPE shall be measured at cost
Elements of Cost
a. Purchase Price
b. Cost directly attributable to bring the asset to the location to be capable of operating
Cost directly attributable Cost that are expense rather than recognized as PPE
1. Cost of employee benefits 1. Cost of opening a facility
2. Cost of site preparation 2. Cost of introducing a new product/ services
3. Initial delivery & handling cost 3. Cost of conducting business in a new location
4. Installation & assembly cost 4. Administration & other general overhead cost
5. Professional fees 5. Initial operating loss
6. Cost of testing whether asset 6. Cost of relocating/ reorganizing past entity
is functioning properly operation
Measurement after Recognition

- may use Cost Model or Revaluation Model
a. Cost Model –carried at cost less any accumulated depreciation and any accumulated
impairment loss
b. Revaluation Model – carried at revalued amount, being the Fair Value at the date of
revaluation less any subsequent A.D. and subsequent Impairment Loss.
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Acquisition of Property
1. Cash Basis – cost is equal to cash price equivalent
-if “lump sum price” it is necessary to apportion the single price to the asset acquired in
order to have a proper basis for computing depreciation.
2. On account – cost is equal to invoice price less the discount, whether discount is taken or not
3. Installment Basis – cash price equivalent at an installment price

4. Issuance of Capital Stock or Bonds Payable – shall be measured at:
a. Fair Value of Property receive
b. Market Value of C/S or Bonds Payable
c. Par Value of C/S or Face Value of B/P
5. Exchange (Asset to Asset) – shall be measured at:

a. Fair Value of property given
b. Fair Value of property received
c. Cost or Book Value of property given
- if there is lack of commercial substance shall be measured at carrying amount of the
asset given up.
6. Donation –
a. if receive from shareholders – cost is Fair Value of item received, credited to APIC
b. if received from non- shareholders – cost is Fair Value of item received, credited to
Income
7. Government Grants
- assistance by government in the form of transfer of resources to an enterprise in return
for part or future compliance with certain conditions relating to the operating activities of the
enterprise.
-carried at Fair Value, should be recognized when there is a reasonable assurance that:
a. the enterprise will comply with the conditions attaching to them.
b. the grant will be received.
- Accounting for government grants:

1. Income Approach – grants should be recognized as income over the periods
necessary to match them with the related cost w/c they are intended to compensate on
a systematic basis.
2. Capital Approach – grants should be credited directly to stockholder’s equity.
Grants are not earned but represent an incentive provided by government w/o related
cost.
8. Construction – Cost includes the Direct Material, Direct Labor and Factory Overhead
Borrowing Cost includes the following:

- in general, recognized as an expense in the period in which it is incurred regardless of
how borrowing is applied.
- if directly attributable to the acquisition, construction or production of a qualifying
asset, as an allowed alternative treatment, the borrowing cost should be capitalized as part of
asset.
a. Asset financed by “specific borrowing” – capitalized the actual borrowing cost

incurred less any investment income
b. Asset financed by “general borrowing” – capitalized the amount computed by
multiplying average carrying amount of asset by capitalization rate or the actual
borrowing cost whichever is lower. (Capitalization rate is computed by dividing the
total borrowing cost by total general borrowing.)
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Classes of PPE
1. Land
2. Land and Building
3. Machinery
4. Ships
5. Aircrafts
6. Motor vehicles
7. Furniture’s and Fixtures
8. Office Equipment
9. Land Improvements (which is depreciable)
Recognition of Subsequent Cost

- Subsequent cost shall be recognized when it met the two (2 ) criteria.
- PPE shall benefit future periods when:
1. it extend the life of the property
2. it increase the capacity of the property or the quality of the output
3. it improve the efficiency and safety of property
Subsequent Cost:
1. Additions – increase the physical or capacity of the asset
2. Improvements / Betterments – increase the service life or the capacity of the asset.
3. Replacements – substitution of an equal or lesser quality.
a. Replacement of old asset by new one- shall be capitalized
b. Replacement of major part – (extraordinary repair) shall be capitalized
c. Replacement of minor part – (ordinary repair) expense outright
4. Repairs – expense outright but if extraordinary repair shall be capitalized
5. Rearrangement cost – relocating or reinstallation of an asset which proves to be less
efficient in its original location (capitalized)
Derecognition of PPE
- the C.A. of the PPE shall be derecognized on/ when:
1. On disposal – by retirement, destruction, exchange or sale
2. no future economic benefit are expected from its use or disposal
- means the cost and accumulated depreciation of PPE should be removed from the
account.
- Gain/ loss from PPE should be included in profit or loss.
Depreciation
- Systematic allocation of the depreciable amount of an asset over its useful life.
- Recognized as an expense
- Begins when the related property is available for use and ceases when it is
derecognized.
Kinds of Depreciation:
1. Physical Depreciation – depreciable asset’s wear and tear and deterioration over a
period.
2. Functional / Economic Depreciation – arises from obsolescence’s or inadequacy of

asset to perform efficiencies.
Factors of Depreciation
1. Depreciable cost – cost less residual value
2. Residual Value – estimated amount obtain from disposal of the asset
3. Useful Life – period over which an asset is expected to be available for use
a. time period as in years
b. units of output/ production
c. service hours/ working hours
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Method of Depreciation:
1. Uniform change method – depreciation as a function of time
a. Straight line method – annual depreciation is equal to depreciable amount divided by

useful life
b. Composite (dissimilar asset) and Group (similar asset) method
- Composite life is equal to total depreciable cost divided by total annual depreciation
- Composite rate is equal to total annual depreciation divided by total cost of PPE.
2. Variable change/ Use- factor method – depreciation as a function of usage
a. Working hour method – D. rate = depreciable amount divided by service hours

b. Output method – D. rate = depreciable amount divided by units of output
3. Decreasing change or Acceleration method – new asset is capable of producing more

revenue in the earlier years than in later years
a. Sum of the year’s digit – depreciation + depreciation amount x a series of fractions.

SYD = Life x (life + 1 divided by 2)
b. Double declining balance method – Annual Depreciation is equal to declining book
value x a fixed or uniform rate
- (do not recognize residual value) fixed rate = 1 divided by useful life times two
c.150% declining balance method - Annual Depreciation is equal to declining book
value x a fixed or uniform rate
- (do not recognize residual value) fixed rate = 1 divided by useful life times 150%.
Wasting asset
– material objects of economic value and utility to man produced by nature. (natural
Resources) – includes oil, coal, ore precious metal like gold and silver and timber.
Cost of Wasting Assets:

a. Acquisition cost (net of any residual land value)
b. Exploration cost
c. Development cost
d. Extracted restoration cost
Depletion – removal, extraction or exhaustion of a natural resources.
Depletion Rate – amount of depletable cost divided by estimated units to be extracted.

1. Latest Edition - Financial Accounting by Conrado Valix
Philippine Accounting Standards
2. Philippine Accounting Standards Compilation
3. Internet
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BUSINESS LAW
I. Topic(s):
Law on Business Transactions – Contract of Agency
II. Learning Objective(s):

To learn about the following concepts of contracts of agency:
1. Nature, forms and kind of agency
2. Obligations of the agent
3. Obligations of the principal
4. Modes of extinguishment of agency
III. Rundown
Please read above topic in the latest textbook version of “Law on Sales, Agency, Pledge and
Mortgage” by Filipino Business Law authors

Latest Edition - “Law on Sales, Agency, Pledge and Mortgage” by Filipino Business Law
authors
Civil Code
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ONLINE ASSESSMENTS
Reminders:
1. Should be submitted on or before January 15, 2020 exclusively to
saintvincentdeferrercollege@yahoo.com
2. Answers should follow below format for easy checking
On Line
Exam AT TOA MAS BL
1 a a b true
2 c a a a
3 PSA c c false
4 a d d c
5 a e a d
3. Failure to follow instruction 1 and 2 will automatically get zero score from this
edition of online assessment
4. Not all the answer in the online assessments can be found here, so it’s your
responsibility to read, read, read and read other resources such as text books etc.
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QUESTIONS:
(Multiple Choice, Computation, True or False & Identification)
Auditing Theory
1. Management makes its assessment on the effectiveness of internal controls over

financial reporting using a recognized framework for documenting control systems.
The auditor
a. May use a different framework to assess the effectiveness of the controls
b. Must use the same framework to assess the documentation of the controls
c. May use the same framework to assess the documentation of the controls
d. Must use the same framework to assess the effectiveness of the controls
2. If the control deficiencies noted during an audit are less severe and fail to reach the
level of material weakness or a significant deficiency, the auditor
a. Communicates the internal control deficiencies in the engagement letter
b. Communicates the internal control deficiencies in a management letter
c. Must not communicate the internal control deficiencies
d. Communicates the internal control deficiencies in an attorney's letter
3. When the auditor reperforms a control procedure, he

a. Conducts an internal control test
b. Tests the operating effectiveness of the control
c. Conducts a dual-purpose test
d. Tests whether the control is working
4. In an audit of financial statements, if the auditor decides not to rely upon internal
controls, the auditor will
a. Document his understanding of the appropriate internal controls of the company
b. Document his understanding of the relevant internal controls of the company
c. Document his understanding of the operating internal controls of the company
d. Document his understanding of the existing internal controls of the company
5. Which statement is correct concerning the relevance of various types of controls to a

financial audit?
a) An auditor may ordinarily ignore a consideration of controls when a substantive
audit approach is taken.
b) Controls over the reliability of financial reporting are ordinarily most directly
relevant to an audit but other controls may also be relevant.
c) Controls over safeguarding of assets and liabilities are of primary importance, while
controls over the reliability of financial reporting may also be relevant.
d) All controls are ordinarily relevant to an audit.
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Management Advisory Services
1. The first budget to be prepared is usually the cash budget.

After the sales budget is prepared, the capital expenditures budget is normally prepared next.
a. True, True b. True, False c. False, True d. False, False
2. A disadvantage of static budgets is that they:

a. start with a clean slate
b. cannot be used by service companies
c. do not show possible changes in underlying activity levels
d. show the expected results of a responsibility center for several levels of activity
3.
Stellar Co. was organized on August 1 of the current year. Projected sales for the next three months are as
follows:
August $200,000
September 255,000
October 275,000
The company expects to sell 40% of its merchandise for cash. Of the sales on account, one third are
expected to be collected in the month of the sale and the remainder in the following month.
How much is the cash collections for August, September, and October?
4.
Marshall Cabinet Manufacturers uses flexible budgets that are based on the following manufacturing data
for the month of July:
Direct materials $8 per unit

Direct labor $5 per unit
Electric power (variable) $0.30 per unit
Electric power (fixed) $4,000 per month
Supervisor salaries $15,000 per month
Property taxes on factory $4,000 per month
Straight-line depreciation $2,900 per month
How much is the budget based on production of 10,000 units?
5.
The Dandy Jeans Company produces two different types of jeans. One is called the “Simple Life” and the
other is called the “Fancy Life”. The company sales budget estimates that 350,000 of the Simple Life
Jeans and 200,000 of the Fancy Life will be sold during 200x. The Production Budget requires 353,500
units of Simple Life jeans and 196,000 Fancy jeans be manufactured The Simple Life jeans require 3
yards of denim material, a zipper, and 25 yards of thread. The Fancy Life jeans require 4.5 yards of denim
material, a zipper, and 40 yards of thread. Each yard of denim material costs $3.25, the zipper costs $.75
each, and the thread is $.01 per yard. There is enough material to make 2,000 jeans of each type at the
beginning of the year. The desired amount of materials left in ending inventory is to have enough to
manufacture 3,500 jeans of each type.
How much is the Total Direct Materials Purchases Budget?
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Theory of Accounts
1. If an asset’s carrying amount is increased as a result of a revaluation, the increase shall be

credited directly to
a. Equity under the heading revaluation surplus
b. Equity under the heading unrealized gain
c. Retained earnings
d. Income
2. When impairment testing a cash-generating unit, any corporate asset such as the head
office business or compute equipment or the entity’s headquarters should
a. Be allocated on a reasonable and consistent basis
b. Be separately impairment tested
c. Be included in the head office asses or parent’s assets and impairment tested along with
that cash-generating units
d. Not be allocated to cash-generating units
3. Government grants shall be

a. Credited to equity
b. credited to retained earnings
c. Recognized as income immediately
d. Recognized as income on a systematic and rational basis over the periods necessary to
match them with the related costs.
4. It is the cost incurred to extract or exploit the located natural resources

a. Acquisition Cost
b. Exploration cost
c. Development cost
d. Restoration cost
5. The depreciation method used where the usage of the asset varies considerably from
period to period and the service life is more a function of use than passage of time
a. Straight line method
b. Units of production method
c. Sum of the years’ digit method
d. Declining balance method
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Business Law
1. _____________ is a written authorization to an agent to perform specified acts in behalf

of his principal which acts, when performed, shall have binding effect on the principal.
2. One of the specific obligations of the agent is to advance the necessary funds if such is
stipulation, even when the principal is insolvent?
One of the specific obligations of the agent is to answer for the damages which through
his nonperformance the principal may suffer?
3. A commission agent is a person to whom the agent delegates, as his agent, the
performance of an act for the principal which the agent has been empowered to perform
Authority is the directions which the principal may give the agent to follow in the
discharge of his duties as such agent.
4. The principal may generally revoke an agency at will. In the following cases, the
principal has no right to revoke the agency without incurring liability for damages, except
a. If the agency is coupled with interest
b. If a bilateral contract depends on the agency
c. If the agency is the means of fulfilling an obligation already contracted
d. If the agency is terminated by the agent
5. Principal is sometime called a/an _____________

a. delegate b. Attorney-in-fact c. representative d. constituent
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SVFC BS Accountancy - 7th Set Online Resources SY20-19 1st Semester PDF

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SVFC BS Accountancy - 7th Set Online Resources SY20-19 1st Semester PDF

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SAINT VINCENT DE FERRER COLLEGE AUGUST 2019

BS ACCOUNTANCY (1st semester SY 2020-2019) Part 7

II. Learning Objective(s):

Internal Control Components

The control environment encompasses the following elements:

Entity’s risk assessment process

Risks can arise or change due to circumstances such as the following:

 Corporate restructurings. Restructurings may be accompanied by staff reductions and changes in

 New accounting pronouncements. Adoption of new accounting principles or changing accounting

Accordingly, an information system encompasses methods and records that:

 Identify and record all valid transactions.

Communication involves providing an understanding of individual roles and responsibilities pertaining to

Inherent Limitations of Internal Controls

Accounting and Internal Control Assessment

(1st) Understanding of Accounting and Internal Control Systems

 Experience gained from prior audits.

Procedures in Obtaining Understanding

(2nd) Preliminary Assessment of Control Risk

(3rd) Test of Controls

Procedures for Performing Tests of Controls

Assessed Control Risk

High (Maximum) Less than high (Below Maximum)

(4th) Reassessment of control risk

(5th) Final Assessment of Control Risk

IV. Recommended Reference(s):

MANAGEMENT ADVISORY SERVICES

II. Learning Objective(s)

2 Prepare a sales budget, including a schedule of expected cash collections.

3 Prepare a production budget.

6 Prepare a manufacturing overhead budget.

7 Prepare a selling and administrative expense budget.

8 Prepare a cash budget.

9 Prepare a budgeted income statement.

10 Prepare a budgeted balance sheet.

Flexible Budget and Performance Analysis

2 Prepare a report showing activity variances.

3 Prepare a report showing revenue and spending variances.

IV. Recommended Reference(s):

II. Learning Objectives:

Important things to remember

Measurement after Recognition

3. Installment Basis – cash price equivalent at an installment price

5. Exchange (Asset to Asset) – shall be measured at:

- Accounting for government grants:

Borrowing Cost includes the following:

a. Asset financed by “specific borrowing” – capitalized the actual borrowing cost

Recognition of Subsequent Cost

2. Functional / Economic Depreciation – arises from obsolescence’s or inadequacy of

1. Uniform change method – depreciation as a function of time

a. Straight line method – annual depreciation is equal to depreciable amount divided by

2. Variable change/ Use- factor method – depreciation as a function of usage

a. Working hour method – D. rate = depreciable amount divided by service hours

3. Decreasing change or Acceleration method – new asset is capable of producing more

a. Sum of the year’s digit – depreciation + depreciation amount x a series of fractions.

Cost of Wasting Assets:

Depletion – removal, extraction or exhaustion of a natural resources.

Depletion Rate – amount of depletable cost divided by estimated units to be extracted.

IV. Recommended Reference(s):

II. Learning Objective(s):

IV. Recommended Reference(s):

2. Answers should follow below format for easy checking

1. Management makes its assessment on the effectiveness of internal controls over

3. When the auditor reperforms a control procedure, he