Free CPALE Exam Flashcards

The FSRSC develops and adopts Philippine financial reporting standards, subject to BOA and PRC approval and publication. Applicable PFRS/PAS requirements take precedence over the Conceptual Framework; IFRS adoption and local effective dates must be checked rather than assumed.

Management uses judgement, considering requirements for similar or related issues first, then the Conceptual Framework definitions, recognition criteria and measurement concepts. Other standard-setter pronouncements or accounting literature may be considered only if consistent with those sources. A directly applicable standard always governs first.

Use the lower of cost and net realisable value: estimated selling price less completion and selling costs. Recognise write-downs in profit or loss. If NRV recovers, reverse through reduced inventory expense only up to the original write-down; the revised carrying amount cannot exceed cost.

An increase normally goes to OCI and revaluation surplus, except to reverse a prior profit-or-loss decrease for that asset. A decrease normally goes to profit or loss, except to use an existing surplus for that same asset through OCI. Apply the revaluation policy to the relevant asset class.

SPPI plus hold-to-collect normally means amortised cost; SPPI plus collect-and-sell means debt FVOCI, with recycling on derecognition. Other debt assets use FVTPL, subject to permitted designations. The separate irrevocable FVOCI election for eligible non-trading equity investments has no recycling to profit or loss.

Short-term leases have a term of 12 months or less and no purchase option. Low-value leases are assessed using the asset's value when new. For an elected exemption, expense payments straight-line unless another systematic basis better represents the benefit pattern; do not recognise the usual right-of-use asset and lease liability.

Recognise a provision for a present legal or constructive obligation from a past event when an outflow is probable and reliably estimable. A possible obligation, or a present obligation failing recognition criteria, is generally a contingent liability: disclose unless outflow is remote. Specific standards, such as business-combination rules, can differ.

Incremental shares = options outstanding × (1 − exercise price/period-average market price), time-weighted as needed. Continuing-operations EPS attributable to ordinary equity holders of the parent controls dilution, rather than bottom-line total EPS. Include a positive increment only if dilutive under that control number; an in-the-money option that merely reduces a continuing-operations loss per share is antidilutive.

In a cash-priority model, divide a partner's adjusted net capital interest by that partner's loss-sharing fraction. The largest ratio identifies the partner able to absorb the largest assumed loss before a capital deficit. Pay external claims and retain necessary liquidation reserves before safe partner distributions; valid loan/set-off and solvency assumptions matter.

Distinguish fully secured claims, partially secured claims, unsecured claims with statutory priority, and ordinary unsecured claims. A collateral shortfall enters the appropriate unsecured class. These classifications are not a universal four-step payment waterfall: actual preferences, collateral rights and available proceeds follow applicable insolvency law, and priority does not guarantee full payment.

Goodwill = consideration transferred + measured NCI + acquisition-date fair value of any previously held interest − identifiable net assets acquired. Eligible NCI may use the permitted fair-value or proportionate-share measurement choice. If the result is negative, reassess recognition and measurement before recognising a bargain-purchase gain in profit or loss.

Eliminate all unrealised group profit in closing inventory. For a downstream parent-to-subsidiary sale, the profit adjustment belongs to the parent. For an upstream subsidiary-to-parent sale, adjust the subsidiary's profit before allocating it between parent and ordinary NCI. Related tax effects are accounted for separately.

First establish that the performance obligation qualifies for over-time recognition. Use eligible costs incurred/expected eligible total costs only if that depicts transfer of control; adjust for abnormal waste and disproportionate inputs. Cumulative revenue equals allocated transaction price × progress, less prior revenue for the current-period amount. Assess onerous-contract losses under PAS 37.

Translate assets and liabilities at the closing rate and income/expenses at transaction-date rates; averages are acceptable only as reasonable approximations. Share-capital contributions use historical rates, while retained earnings follow translated results. Recognise resulting translation differences in OCI, subject to the applicable disposal and other specific rules.

With no spoilage, weighted-average EUP = completed units + ending WIP × completion fraction. FIFO EUP = work needed to finish opening WIP + units started and completed + work in ending WIP. Calculate materials and conversion separately. FIFO isolates current-period work; weighted average blends opening and current work/costs.

Debit Cash-MDS, Regular; credit Subsidy from National Government. A subsequent payment credits Cash-MDS and debits the appropriate payable or expense. For an unused regular NCA that lapses, make the prescribed reversal/adjustment. Receipt of spending authority alone is not an expense, and validity and fund-type rules must be respected.

Unit CM = price − unit variable cost; CM ratio = unit CM/price. Break-even units = fixed costs/unit CM; break-even sales = fixed costs/CM ratio. Target units = [fixed costs + target after-tax profit/(1 − tax rate)]/unit CM. These formulas assume positive CM and the stated linear cost, price and mix assumptions.

In the same linear CVP model, DOL = contribution/EBIT and MOS ratio = (sales − break-even sales)/sales, so DOL = 1/MOS ratio. Hold price, unit variable cost, fixed cost and sales mix constant. At break-even EBIT and MOS are zero, so these leverage ratios are undefined rather than finite.

In the simple model, absorption income − variable income equals fixed manufacturing overhead deferred in closing inventory less fixed overhead released from opening inventory. The shortcut (production − sales) × fixed-overhead rate requires a consistent unit rate and no other reconciliation adjustments. Changing rates or volume-variance treatment requires the actual deferred/released amounts.

Materials price: quantity priced × (actual price − standard price); use purchases if recognised at purchase. Materials quantity: standard price × (quantity used − quantity allowed). Labour rate: actual hours × (actual rate − standard rate). Labour efficiency: standard rate × (actual hours − allowed hours). For these cost formulas, positive is unfavourable.

NPV measures the absolute value added using a risk-compatible opportunity cost of capital. IRR is a percentage and can misrank projects with different scale or timing; non-conventional cash flows can yield multiple or no IRRs. Compare consistent alternatives and constraints. NPV does not require actual reinvestment of interim receipts at the discount rate.

EOQ = sqrt(2DS/H), where D is annual units, S cost/order and H annual holding cost/unit. In the basic constant-demand, immediate-replenishment, no-shortage/no-discount model, annual cycle-stock holding cost equals ordering cost at EOQ. ROP = demand during lead time + safety stock, using compatible time units and an appropriate uncertainty model.

ROE = (net income/sales) × (sales/average assets) × (average assets/average equity). They represent net profitability, asset turnover and balance-sheet leverage. Net margin includes financing and tax effects; it is not an EBIT operating margin. A higher equity multiplier does not by itself prove that interest-bearing debt increased.

Post-incorporation adoption requires a majority of outstanding capital stock; pre-incorporation by-laws require all incorporators. Amendment normally requires a majority of the board plus a majority of outstanding capital stock. Two-thirds of stock may delegate amendment power to the board; a majority may revoke it. Required SEC certification/filings still apply.

Obtain high, not absolute, assurance that the financial statements as a whole are free from material misstatement due to fraud or error. Scepticism means a questioning mind, alertness to possible misstatement and critical evaluation of evidence. It avoids both automatic distrust and unquestioning acceptance of management.

In the planning model, audit risk = inherent risk × control risk × detection risk, and RMM = inherent × control risk. Holding target audit risk fixed, higher assessed RMM requires lower planned detection risk. Respond through the nature, timing and extent of procedures and more persuasive evidence, rather than sample size alone.

Control environment; the entity's risk-assessment process; information and communication; control activities; and monitoring. Assess their relevant design and implementation under PSA 315. A component's existence in policy documents does not alone establish effective operation throughout the period.

An identified material but non-pervasive misstatement leads to a qualified opinion; material and pervasive misstatement leads to an adverse opinion. For inability to obtain evidence, possible material/non-pervasive effects lead to qualification; possible material/pervasive effects lead to disclaimer, subject to applicable withdrawal requirements. Missing evidence is not itself proof of misstatement.

KAM are matters of most significance in the current audit, selected from governance communications. PSA 701 applies to complete general-purpose financial statements of listed entities and where otherwise required or voluntarily applied. KAM do not replace required disclosures, a modified opinion or required going-concern reporting.

Independent sources, direct auditor receipt, documentary form and effective controls over internally generated information generally strengthen reliability. Originals and authentic records may be more persuasive than uncontrolled copies. These are contextual generalisations, not an absolute hierarchy; source competence, authenticity and contradictory evidence must still be evaluated.

Overreliance on controls and incorrect acceptance of a misstated population threaten effectiveness and may support an inappropriate opinion. Underreliance and incorrect rejection usually create unnecessary work and reduce efficiency. Sampling risk differs from errors in choosing or applying a procedure, which are non-sampling risks.

Self-interest, self-review, advocacy, familiarity and intimidation. Examples are a financial interest, auditing one's own earlier work, promoting a client's position, excessive sympathy from a close relationship, and pressure that compromises judgement. Identify, evaluate and address threats under the applicable Philippine Code; naming them does not resolve them.

Eligible non-VAT self-employed individuals/professionals whose gross sales/receipts plus other non-operating income do not exceed PHP 3 million may elect the option under BIR rules. For purely business income, tax is 8% of the covered base above PHP 250,000. Mixed-income earners receive no second PHP 250,000 reduction on their business base. Compensation remains under graduated rates.

Domestic-corporation RCIT is generally 25%; 20% applies if net taxable income is at most PHP 5 million and assets at most PHP 100 million, excluding only land where its office, plant and equipment are situated. MCIT is currently 2% of gross income from the fourth taxable year following commencement, when higher than RCIT. Excess MCIT credits may be used against RCIT for the next three taxable years.

For an ordinarily VAT-taxable business, mandatory registration generally applies when annual gross sales exceed PHP 3 million. A legally qualifying zero-rated sale has 0% output VAT and may support attributable input-credit/refund rights. An exempt sale generally carries no output VAT or input-credit right. PEZA or ecozone status alone does not make every sale zero-rated.

Estate tax is 6% of the taxable net estate. The standard deduction is PHP 5 million. The family-home deduction is limited by the qualifying interest included in the gross estate and the PHP 10 million statutory ceiling, subject to legal conditions. These are estate deductions, not separate tax credits or automatic exclusions from gross estate.

Tax is 6% of cumulative net taxable gifts above PHP 250,000 per donor per calendar year, allowing credit for donor's tax previously paid for that year. The threshold is not per recipient or per gift. The old stranger-versus-relative rate distinction is removed; statutory exempt gifts must still be identified.

For covered new instruments/transactions: Philippine-source deposit interest in any currency is generally 20%; domestic-corporation cash/property dividends 10%; passive royalties 20%, or 10% for books, other literary works and musical compositions. Before 1 July 2025 financial instruments may retain their prior treatment for the remaining maturity under transition rules. Non-resident exemptions and treaties require separate analysis.

Section 203 generally allows three years from the statutory filing deadline or actual filing, whichever is later. Section 222 provides ten years from discovery for a false or fraudulent return with intent to evade tax, or non-filing, as specified there. Valid waivers, statutory suspensions and other exceptions can alter the computation. Assessment and collection are distinct.

A valid VAT invoice meeting BIR requirements is the primary document for both goods and services. An ordinary official receipt acknowledges payment and is not by itself the primary VAT invoice. Proper transitional conversion of old receipts must meet BIR rules. An invoice alone does not cure an otherwise non-creditable purchase.

Payment or performance; loss of the thing due; condonation or remission; confusion or merger; compensation; and novation. Each has legal conditions. The Code also recognises other causes, including annulment, rescission, fulfilment of a resolutory condition and prescription.

Rescissible: valid until rescinded on a legal ground. Voidable: one party’s incapacity or vitiated consent; binding until annulled and capable of ratification. Unenforceable: cannot be enforced unless ratified as law permits, including contracts where both parties are legally incapable of consent. Void/inexistent: invalid from the outset and cannot be ratified. These are categories, not a universal enforceability ranking.

An eligible natural person, trust or estate may form an OPC, subject to RCC exclusions; a licensed professional cannot use it to practise that profession unless special law allows. Nominee and alternate act on incapacity/death under the articles and succession rules. A trust is distinct from an excluded trust company.

For a stock corporation with no creditor prejudice, RCC Section 134 requires a board majority and a majority of outstanding capital stock. If creditor rights may be prejudiced, RCC Section 135 requires the petition signed by a board majority and at least two-thirds stock approval. Notices, SEC proceedings and the required dissolution certificate remain necessary; the vote alone does not complete dissolution.

General rule: cash/equivalent transactions over PHP 500,000 within one banking day. Special rules include a single casino cash transaction over PHP 5 million and a single cash transaction with a covered real-estate developer/broker over PHP 7.5 million. Suspicious transactions are reportable under the applicable criteria regardless of amount; reporting is not a finding of money laundering.

PHP 1 million per depositor per insured bank for insurable deposits. Aggregate the depositor's eligible individual accounts across branches of the same bank; more account numbers do not multiply the limit. Joint accounts have separate coverage and aggregation rules. The former PHP 500,000 limit is obsolete for this effective-date period.

Transparency, legitimate purpose and proportionality govern processing under RA 10173. Sensitive information includes specified personal attributes, health/education/genetic or sexual-life data, offences/proceedings and specified government identifiers. Its processing requires an applicable Section 13 condition; ordinary consent or a general business purpose must not automatically be treated as sufficient.

The order generally stays claim enforcement and judgments against the debtor, restricts non-ordinary asset disposal and payment of pre-commencement liabilities. Section 18 contains exceptions, including specified third-party claims, appeals already pending before the Supreme Court at commencement, and criminal actions. A stay is not a blanket immunity for every connected person or proceeding.

For the statutory presumption, the check must be presented within 90 days of its stated date and dishonoured for the relevant reason. The drawer must receive notice and fail to pay or arrange full payment within five banking days. Actual receipt of written notice matters. This is a rebuttable presumption, not automatic conviction; all offence elements require proof.

Look for an investment of money in a common enterprise with an expectation of profits primarily from others' efforts, considering the actual contract, transaction or scheme. An investment contract is a security; public offer/sale generally requires SEC registration unless a lawful security or transaction exemption applies. A marketing label does not determine classification.