Since 1977

AUDITNG
FINAL PREBOARD SET A

1. The need for assurance services arises for a reason of
a. Seeking recommendation.
b. Closeness between a user and the organization.
c. Implementing a system that improves the
processing of information.
d. Risk management.
2. Which of the following engagements may be performed
by a practitioner who is not independent of the client?
a. Attestation c. AUP
b. Review d. Audit
3. The auditor's judgment concerning the entity’s
financial statements (or the “criteria” used) in a
financial statements audit should be based on
a. GAAP
b. Effectiveness and efficiency
c. Rules and regulations
d. Company policies
4. Completeness assertion about presentation and
disclosure means
a. Disclosed events, transactions, and other matters
have occurred and pertain to entity.
b. All disclosures that should have been included in
the financial statements have been included.
c. Financial information is appropriately presented
and described, and disclosures are clearly
expressed.
d. Financial and other information are disclosed fairly
and at appropriate amounts.
5. Ultimately, what is sufficient appropriate audit
evidence depends on
a. Auditor’s professional judgment
b. Users’ view
c. Management’s judgment
d. All of the above
6. Vouching is testing that should begin from the
a. General ledger balances.
b. Adjusted trial balance.
c. Original source documents.
d. General journal entries.
7. Audit documentation should be retained
a. As long as lead schedules have relevance to
forthcoming audits.
b. A minimum of seven years.
c. Until 3 years after the client selects another
auditor.
d. Working papers must be maintained indefinitely.
8. If permission from client to discuss its affairs with the
proposed auditor is denied by the client, the
predecessor auditor should:
a. Keep silent of the denial.
b. Disclose adequately to proposed auditor all
noncompliance made by the client.
c. Disclose the fact that the permission to disclose is
denied by the client.
d. Seek legal advice before responding to the
proposed auditor
9. Engagement letters are required for?
a. All engagements
b. Audit engagements only
c. Assurance engagements only
d. All engagements except the preparation of ITR
10. It sets the scope, timing and direction of the audit
a. Audit plan c. Audit strategy
b. Audit program d. All of the above.
11. Which of the following procedures would an auditor
most likely include in the initial planning of a financial
statement audit?
a. Obtaining a written representation letter from the
client's management.
b. Examining documents to detect illegal acts having
a material effect on the financial statements.
c. Performing analytical procedures.
d. Considering whether the client's accounting
estimates are reasonable in the circumstances.
12. The preliminary judgment about materiality is the
_________ amount by which the auditor believes the
statements could be misstated and still not affect the
decisions of reasonable users.
a. Minimum c. Mean average
b. Maximum d. Median average
13. Materiality for an audit of a not-for-profit organization
is most likely to be determined as a percentage of
which of the following?
a. Total assets
b. Excess of revenue over expenses for the period
c. Total expenses
d. Pre-tax income
14. The main purpose of substantive procedures is to
a. Obtain an understanding of the entity and its
environment, including its internal control, to
assess the risks of material misstatement at the
financial statement and assertion levels.
b. Test the operating effectiveness of controls in
preventing, or detecting and correcting, material
misstatement at the assertion level.
c. Detect material misstatements at the assertion
level.
d. All of the above
15. An example of an analytical procedure is the
comparison of
a. Financial information with similar information
regarding the industry in which the entity operates
b. Recorded amounts of major disbursements with
appropriate invoices
c. Results of a statistical sample with the expected
characteristics of the actual population
d. EDP generated data with similar data generated by
a manual accounting system
16. When evaluating a client's system of internal control to
determine whether the necessary procedures are
prescribed and have been implemented satisfactorily,
an auditor must
a. Develop questionnaires and checklists.
b. Obtain an understanding of internal control.
c. Perform tests of internal control procedures.
d. Evaluate administrative policies.

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AUDITING PROBLEMS
17. Which of the following would an auditor least likely
perform when obtaining understanding of the entity’s
internal control?
a. Re-performance of internal control
b. Inquiries of appropriate personnel
c. Inspection of documents and record
d. Observation of the entity’s activities and operations
18. Internal controls can never be considered as absolutely
effective because:
a. their effectiveness is limited by the competency
and dependability of employees.
b. not all organizations have internal audit
departments.
c. controls are designed to prevent and detect only
material misstatements.
d. internal controls prevent separation of duties.
19. A major control available in a small company, which
might not be feasible in a big company, is:
a. a wider segregation of duties.
b. a voucher system.
c. fewer transactions to process.
d. the owner-manager’s personal interest and close
relationship with personnel.
20. Which of the following risks of material misstatement
relating to receivables pertains to existence assertion?
a. Receivables account is overstated due to
unrecorded receipts.
b. Receivables account is overstated because the
entity does not have the rights to collect them.
c. Receivables account is understated because
shipments to customers were not billed and
recorded as sales.
d. Receivables account is overstated due to
inadequacy of allowance for doubtful accounts as a
result of deteriorating economic conditions.
21. Assessing the level of inherent risk is based on the
a. Susceptibility of an assertion to material
misstatement.
b. Effectiveness of the design and implementation of
internal control.
c. Both a and b.
d. Neither a nor b.
22. Responses to financial statement level risks of material
misstatement pertain to
a. Tests of controls.
b. Substantive procedures.
c. Overall responses.
d. Risk assessment procedures.
23. An auditor may compensate for a weakness in internal
control by increasing the
a. Level of detection risk.
b. Extent of tests of controls.
c. Preliminary judgment about audit risk.
d. Extent of analytical procedures.
24. If the auditor is concerned that a population may
contain exceptions, the determination of a sample size
sufficient to include at least one such exception is a
characteristic of
a. Discovery sampling. c. Random sampling.
b. Variables sampling. d. PPS sampling.
25. When the auditor goes through a population and
selects items for the sample without regard to their
size, source, or other distinguishing characteristics, it
is called:
a. Block sample selection.
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SET A
b. Haphazard selection.
c. Systematic sample selection.
d. Statistical selection.
26. Relative to internal controls, what is a primary risk of
fraud in the client company?
a. The risk that management changes controls each
year.
b. The risk that management carefully enforces and
monitors controls.
c. The risk that management overrides controls.
d. The risk that the audit committee monitors
controls.
27. Which of the following factors or conditions is an
auditor least likely to plan an audit to discover?
a. High turnover of senior management.
b. Inadequate monitoring of significant controls.
c. Financial pressures affecting employees.
d. Inability to generate positive cash flows from
operations.
28. Which of the following characteristics most likely would
heighten an auditor's concern about the risk of
intentional manipulation of financial statements?
a. Turnover of senior accounting personnel is low.
b. Insiders recently purchased additional shares of
the entity's stock.
c. Management places substantial emphasis on
meeting earnings projections.
d. The rate of change in the entity's industry is slow.
29. Which of the following statements is correct regarding
the auditor's consideration of the possibility of illegal
acts by clients?
a. The auditor has a responsibility to plan and
perform the audit to obtain reasonable assurance
that no illegal acts have been committed by
clients.
b. The auditor's training, experience, and
understanding of the client should be used to
provide a basis for the determination as to whether
illegal acts have occurred.
c. If specific information concerning an illegal act
comes to the auditor's attention, the auditor
should apply audit procedures specifically directed
to ascertaining whether an illegal act has occurred.
d. If an illegal act has occurred, the auditor should
express a qualified opinion or an adverse opinion
on the financial statements taken as a whole.
30. An auditor who discovers that a client’s employees
paid small bribes to municipal of officials most likely
would withdraw from the engagement if
a. The payments violated the client’s policies
regarding the prevention of illegal acts.
b. The client receives financial assistance from a
federal government agency.
c. Management fails to take the appropriate remedial
action.
d. Documentation that is necessary to prove that the
bribes were paid does not exist.
31. Which of the following is not a procedure normally
performed while completing the audit?
a. Auditing subsequent events.
b. Obtain a representations letter.
c. Obtain confirmation of capital stockholdings from
shareholders.
d. Perform an overall review using analytical
procedures.
AUDITING PROBLEMS
32. During the annual audit of Ajax Corp., a publicly held
company, Jones, CPA, a continuing auditor,
determined that illegal political contributions had been
made during each of the past seven years, including
the year under audit. Jones notified the board of
directors about the illegal contributions, but they
refused to take any action because the amounts
involved were immaterial to the financial statements.
Jones should reconsider the intended degree of
reliance to be placed on the:
a. Letter of audit inquiry to the client's attorney.
b. Prior years' audit plan.
c. Management representation letter.
d. Preliminary judgment about materiality levels.
33. The date of the management representation letter
should coincide with the:
a. Balance sheet date.
b. Date of the latest subsequent event referred to in
the notes to the financial statements.
c. Date of the auditor's report.
d. Date of the engagement agreement.
34. Which of the following statements correctly describe
the auditor’s responsibility in respect of
misstatements?
a. PSA 450 Evaluation of misstatements identified
during the audit states that the auditor only has a
responsibility to accumulate material
misstatements identified during the audit
b. Where misstatements are not material the auditor
should request that management to correct the
misstatements in the following accounting period
c. A written representation should be requested from
management to confirm whether they believe that
the effects of the unadjusted misstatements are
immaterial, both individually and in aggregate, to
the financial statements as a whole
d. If management refuses to correct some or all of
the misstatements, the auditor should consider the
implications of this for their audit opinion
35. A refusal by a lawyer to furnish information related to
litigation included in the letter of inquiry is likely to
result in:
a. Confirmation of related lawsuits with the claimants.
b. An assessment that loss of the litigation is
probable.
c. Qualification of the audit report.
d. An adverse opinion.
PROBLEM NO. 1
You were able to obtain the following information in
connection with your audit of the Cash account of the
Naulit Muli Company as of December 31, 2019:
Nov. 30 Dec. 31
a. Balance per bank P1,209,120 P1,058,145
b. Undeposited 603,900 742,500
collections
c. Outstanding checks 371,250 297,000
e. The bank statement for the month of December
showed total debits of P732,600.
f. NSF checks are recorded as reduction of cash receipts.
NSF checks which are later redeposited are then
recorded as regular receipts. Data regarding NSF
checks are as follows:
1. Returned by the bank in November and recorded
by the company in December, P24,750.
2. Returned by the bank in December and recorded
by the company in December, P49,500.
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SET A
3. Returned by the bank in December and recorded
by the company in January, P74,250.
g. Check of Inulit Uli Company amounting to P222,750
was charged to company’s account by the bank in
error on December 31.
h. A bank memo stated that the company’s account was
credited for the net proceeds of Sana Tama’s note for
P262,350.
i. The company has hypothecated its account receivable
with the bank under an agreement whereby the bank
lends the company 80% of the hypothecated accounts
receivable. The company performs accounting and
collection of the accounts. Adjustments of the loan are
made from daily sales reports and deposit.
j. The bank credits the company account and increases
the amount of the loan for 80% of the reported sales.
The loan agreement states specifically that the report
must be accepted by the bank before the company is
credited. The sales report are forwarded by the
company to the bank on the first day following the
date of sale. The bank allocates each deposit 80% to
the payment of the loan, and 20% to the company
account. Thus, only 80% of each day sales and 20% of
each collection deposits are entered on the bank
statement. The company accountant records the
hypothecation of new accounts receivable (80% of
sales) as a debit to cash and a credit to bank loan as of
the date of sales. One hundred percent of the
collection on accounts receivable is recorded as a cash
receipt; 80% of the collection is recorded in cash
disbursements books as a payment on loan. In
connection with the hypothecation, the following facts
were determined:
 Included in the undeposited collections is cash
from the hypothecation of accounts receivable.
Sales were P412,500 on November 30 and
P462,000 at December 31. The balance was made
up from collections which were entered on the
books in the manner indicated above.
 Collections on accounts receivable deposited in
December, other than deposits in transit, totaled
P1,794,375.
k. Interest on the bank loan for the month of December
charged by the bank but not recorded in the books,
amounted to P94,050.
QUESTIONS:
Based on the above and result of your audit, answer the
following:
36. The unadjusted balance per books as of November 30,
2019
a. P1,170,840 c. P1,136,520
b. P 976,140 d. P1,247,400
37. The unadjusted book receipts as of for December,
2019
a. P2,215,125 c. P1,779,525
b. P2,413,125 d. P1,819,125
38. The unadjusted book disbursement for December,
2019
a. P2,603,700 c. P1,653,300
b. P2,009,700 d. P1,732,500
39. The unadjusted balance per book as of December 31,
2019
a. P1,521,465 c. P1,262,745
b. P2,118,765 d. P1,334,025
40. The auditor uses a cutoff bank statement to compare:
a. deposits in transit on the year-end bank
reconciliation to deposits in the cash receipts
journal.
AUDITING PROBLEMS SET A

b. checks dated prior to year-end to the outstanding Baked beans Plain flour
checks listed on the year-end bank reconciliation. Purchases 1. 12 November: 1. 5 November:
c. deposits listed on the cutoff statement to 20,000 cases 15,000
disbursements in the cash disbursements journal. @ P58.50 per boxes @
d. checks dated subsequent to year-end to the case P115.35
outstanding checks listed on the year-end bank 2. 19 November: 2. 15
reconciliation. 47,000 cases November:
@ P59.10 per 20,000
PROBLEM NO. 2 case boxes @
Paasa Bank granted a loan to a borrower in the amount P115.35
of P7,500,000 on January 1, 2018. The interest rate on the 3. 29
loan is 10% payable annually starting December 31, 2018. November:
The loan matures on December 31, 2021. Paasa bank 24,000
incurs P80,625 of direct loan origination cost and P67,500 boxes @
of indirect loan origination cost. In addition, Paasa Bank P117.00
charges the borrower a 10-point non-refundable loan Purchase terms 2/10, n/30, FOB n/30, FOB seller
origination fee. seller
November sales 73,000 cases @ 95,000 boxes @
The borrower paid the interest due on December 31, 2018.
P85.50 120.00
However, during 2019 the borrower began to experience
Returns and A customer As November 15
financial difficulties, requiring the bank to reassess the
allowances returned 5,000 purchase was
collectability of the loan. As of December 31, 2019, the
cases that had unloaded, 1,000
bank expects that only P5,625,000 of the principal will be
been shipped in boxes were
recovered. The P5,625,000 principal amount is expected to
error. The discovered
be collectible in two equal installments on December 31,
customer's damaged. A
2021 and December 31, 2023. The prevailing interest rates
account was credit of
for similar type of note as of December 31, 2018 and 2019
credited for P115,350 was
are 14% and 15%, respectively.
P427,500. received by
QUESTIONS: ARZEN Retailing
Based on the above and the result of your audit, answer Ltd.
the following: (Round off present value factors to four Physical count at
decimal places and final answers to nearest hundred) 30 November 32,600 cases on 1,500 boxes on
2019 hand hand
41. The interest income to be recognize in 2018 is Explanation of No explanation Boxes
a. P1,024,600 c. P888,000 variance found assumed purchased on
b. P 751,300 d. P683,000 stolen 29 November
still in transit
42. The carrying amount of the loan as of December 31, on 30
2018 November
a. P7,173,500 c. P6,968,600 Net realizable
b. P7,105,200 d. P6,832,000 value at 30 P87.00 per case P115.36 per box
November
43. The present value of the expected future cash flows as 2019
of December 31, 2019
a. P3,927,400 c. P4,643,600 QUESTIONS:
b. P3,734,700 d. P4,135,200 Based on the above and the result of your audit, answer
the following:
44. The loan impairment loss in 2019 is 46. The inventory of baked beans as of November 30,
a. P2,989,300 c. P3,389,800 2016 at cost, as adjusted is
b. P3,197,200 d. P3,480,950 a. P1,925,580 c. P1,927,080
b. P1,926,660 d. P1,924,080
45. The carrying amount of the loan as of December 31,
2020 is 47. The inventory of plain flour as of November 30, 2016
a. P4,226,500 c. P4,437,900 at cost, as adjusted is
b. P4,294,950 d. P4,590,100 a. P2,941,665 c. P173,025
b. P2,981,025 d. P173,175

PROBLEM NO. 3 48. The amount of inventory shortage is

ARZEN Retailing Ltd is a food wholesaler that supplies a. P82,320 c. P505,680
independent grocery stores. The company operates a b. P82,740 d. P 0
perpetual inventory system, with the first-in, first-out
method used to assign costs to inventory items. 49. The total inventory to be recognized in the balance
Transactions and other related information regarding two sheet as of November 30, 2016 is
of the items (baked beans and plain flour) carried by a. P2,099,685 c. P4,868,340
ARZEN Ltd are given below for November 2019 the last b. P4,868,325 d. P2,099,460
month of the company's reporting period.
50. Which of the following is the best procedure for
Baked beans Plain flour identifying shortages of specific items in an inventory of
Unit of packaging Case containing Box containing raw materials?
25 x 410g cans 12 x 4kg bags a. Compare the results of a physical inventory of raw
Inventory @ 1 35,000 cases @ 62,500 boxes @ materials with perpetual inventory records.
November P58.80 P115.20 b. Compare inventory turnover rates with prevailing
2019 rates from previous years.

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AUDITING PROBLEMS
c. Estimates inventory quantities by using the gross
profit method.
d. Review internal controls for the physical protection
of inventories.
PROBLEM NO. 4
On January 1, 2019, OnePunchMan Airlines acquired a new
airplane for a total cost of P45 million. A breakdown of the
costs to build the airplane was given by the
manufacturers:
Aircraft body P 13,500,000
Engines (2) 18,000,000
Fitting out of aircraft:
Seats 4,500,000
Carpets 225,000
Electrical equipment –
passenger seats 900,000
cockpit 6,750,000
Food preparation equipment 1,125,000
All costs include installation and labor costs associated with
the relevant part.
It is expected that the aircraft will be kept for ten years
and then sold. The main value of the aircraft at that stage
is the body and the engines. The expected selling price is
P9.45 million, with the body and the engines proportionate
value.
Costs in relation to the aircraft over the next ten years are
expected to be as follows:
Aircraft body – The body requires inspection every two
years for cracks and wear and tear, at a cost of P45,000.
Engines – Each engine has an expected life of four years
before being sold scrap. It is expected that the engines will
be replaced in 2023 for P20.25 million and again in 2027
for P27 million. These engines are expected to incur annual
maintenance costs of P1,350,000. The manufacturer has
informed OnePunchMan Airlines that a new prototype
engine an extra 10% capacity should be on the market in
2025, and that existing engines could be upgraded at a
cost of P4.5 million.
Fittings – Seats are replaced every three years. Expected
replacement cost are P5.4 million in 2022 and P6.75
million in 2025. The repair of torn seats and faulty
mechanisms is expected to cost P450,000 per annum.
Carpets are replaced every five years. They will be
replaced in 2024 at an expected costs of P292,500, but will
not be replaced before the aircraft sold in 2029. Cleaning
costs per annum amount to P45,000. The electrical
equipment (such as the TV) for each seat has annual
repair cost of P67,500. It is expected that, with the
improvements of technology, the equipment will be totally
replaced in 2025 by substantially better equipment at a
cost of P1,575,000. The electrical equipment in the cockpit
is tested frequently at an expected annual cost of
P1,125,000. Major upgrades to the equipment are
expected every two years at expected costs of P1,125,000
(in 2021), P1,350,000 (in 2023), P1,552,500 (in 2025)
and P1,845,000 (in 2027). The upgrades will take into
effect the expected changes in technology.
Food preparation equipment – This incurs annual costs for
repair and maintenance of P90,000. The equipment is
expected to be totally replaced in 2025.
QUESTIONS:
Based on the above and result of your audit, answer the
following:
51. The annual depreciation expense for aircraft body is
a. P405,000 c. P1,350,000
b. P945,000 d. P1,066,500
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SET A
52. The annual depreciation expense for engines is
a. P1,800,000 c. P3,150,000
b. P4,500,000 d. P1,260,000
53. The annual depreciation for fittings is
a. P1,237,500 c. P2,347,500
b. P2,370,000 d. P5,070,000
54. The annual depreciation expense for food preparation
equipment is
a. P112,500 c. P225,000
b. P187,500 d. P281,250
55. To test the accuracy of the current year’s depreciation
charges, an auditor should rely most heavily on
a. Comparison of depreciation schedule detail with
schedules supporting the income tax return
b. Re-computation of depreciation for sample of plant
assets
c. Tracing totals from the depreciation schedule to
properly approved journal entries and ledger
postings
d. Vouching of the current year’s fixed asset
acquisitions
PROBLEM NO. 5
Among the account balances of Naga Corporation at
December 31, 2018 are the following :
Patent Net P 4,287,500
Installment contract receivable 12,600,000
Relevant transaction and other information for 2016 were
as follows :
a. The patent was purchased from Inventor Company for
P 5,512,500 on September 1, 2015. On that date, the
remaining legal life was fifteen years, which was also
determined to be useful life.
b. The installment contract receivable represents the
balance of the consideration received from the sale of
a factory building to Feeble Company on March 31,
2017 for P 21,000,000. Feeble made a P 5,250,000
down payment and signed a five-year 13% note for
the P 15,750,000 balance. The first of equal annual
principal payments of P 3,150,000 was received on
March 31,2017 together with the interest to that date.
The note is collateralized by the factory building with
the fair value of P 17,500,000 at December 31, 2019.
The 2019 payment was received on time.
c. On January 2, 2019 Naga purchased a trademark from
Cool Corporation for P 4,375,000. Naga considers the
life of the trademark to be indefinite.
d. On May 1, 2019, Naga sold the patent to Simple
Company in Exchange for P 8,750,000 non-interest
bearing note due on May 1, 2022. There was no
established exchange price for the patent, and the
note had no ready market. The prevailing rate interest
for a note of this type at May 1, 2019 was 14 %. The
collection of the note receivable from Simple is
reasonably assured.
e. On July 1, 2019, Naga paid P 32,900,000 for 750,000
ordinary shares of Pure Corporation, which represented
a 25% investment in Pure. The fair value of all Pure’s
identifiable assets net of liabilities equals their carrying
amount of P 112,000,000. The market price of Pure’s
ordinary share on December 31, 2018 was P 45.50 per
share.
f. Pure reported net income and paid dividends of
Net Income Dividend per
share
Six Months ended
6/30/18 P10,080,000 None
Six Months ended
12/31/18 12,320,000 P3.50
AUDITING PROBLEMS SET A

Dividend was paid on November 30, 2019. Customer Customer’s Audit Findings
Comments
QUESTIONS:
Akai The goods sold on The client failed to
Based on the above and the result of your audit, compute
December 1 were record a credit memo
for the following: (Round off present value factors to four
returned on for P37,500. The
decimal places)
December 16, merchandise was
2019. included in the ending
56. Gain on sale of patent
inventory at cost.
a. P1,741,250 c. P1,618,750
b. P1,986,250 d. P4,585,000
Balmond We do not owe this Investigation revealed
amount *%#@ that goods sold for
57. Total interest income for 2019
(bad word). We P102,000 were
a. P1,882,125 c. P2,454,667
did not receive any shipped to Customer
b. P2,157,750 d. P2,464,875
merchandise from B on December 29,
your company. 2019, terms FOB
58. Noncurrent portion of the installment contract
Seller. The goods
receivable as of December 31,2019
were lost in transit
a. P6,300,000 c. P9,450,000
and the shipping
b. P7,528,500 d. P6,607,125
company has
acknowledged its
59. Carrying amount of the note receivable from sale of
responsibility for the
patent as of December 31, 2019
loss of the
a. P6,457,500 c. P6,733,125
merchandise.
b. P5,906,250 d. P8,750,000
Baxia I am entitled to a Customer C is an
60. The Carrying amount of the investment in Pure
10% employee employee of
Corporation as of December 31,2019
discount. Your bill Despacito. Starting
a. P33,355,000 c. P34,125,000
should be reduced November 2019, all
b. P32,900,000 d. P35,875,000
by P12,000. company employees
were entitled to a
PROBLEM NO. 6
special discount.
Presented below are unaudited balances of selected
accounts of Tank Corporation as of December 31, 2019.
Belerick We have not yet Merchandise billed for
Debit Credit sold the goods. P405,000 were
Cash P 2,250,000 We will remit the consigned to
Accounts receivable 11,700,000 proceeds as soon Customer D on
Inventory 14,400,000 as the goods are December 30, 2019.
Accounts payable P 5,100,000 sold. The goods cost
Sales, net 132,000,000 P270,000.

During the course of your audit of Tank’s books you Esmeralda We do not owe you The sale of
obtained additional information affecting these accounts. P30,000. We merchandise on
Cash already paid our December 18, 2019
The cash account consists of the following: accounts as was paid by Customer
evidenced by OR E on January 6, 2020.
Cash in bank P2,235,000 #7339344.
Petty cash fund 15,000
Total P2,250,000 Gatotkaca Reduce your bill by This amount
Included among the checks drawn by Tank against the P3,300 represents freight
Cash in bank account and recorded in December 2019 are paid by the customer
the following: for the merchandise
shipped on December
 Check written and dated December 29, 2019 and 17, 2019, terms, FOB
delivered to payee on January 2, 2020, P150,000. Buyer-collect.
 Check written on December 27, 2019, dated January
2, 2020, delivered to payee on December 29, 2019, Inventory
P270,000. You noted the following information relating to certain
inventory transactions from your observation of the client’s
The Petty cash fund consisted of the following items as of physical count and review of sales and purchases cutoff:
December 31, 2019.
a. Goods costing P345,000 were received from a vendor
Currency and coins P 3,150 on January 3, 2020. The related invoice was received
Employees’ IOUs 2,400 and recorded on December 30, 2017. The goods were
Currency in an envelope marked shipped on December 31, 2019, terms FOB Seller.
“collections for charity” with names
attached 1,800 b. Goods costing P300,000, sold for P450,000, were
Unreplenished petty cash vouchers 1,200 shipped on December 31, 2019, and were received by
Check drawn by Tank, payable to the the customer on January 2, 2020. The terms of the
petty cashier 6,900 invoice were FOB Seller. The sale was recorded in
P15,450 2020.

Accounts Receivable c. The invoice for goods costing P255,000 was received
Confirmation replies received directly from customers and recorded as a purchase on December 31, 2019.
disclosed the following exceptions: The related goods, shipped FOB Buyer were received
on January 2, 2020.

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AUDITING PROBLEMS SET A

f. The entity constructed a new building at its new site

d. A P900,000 shipment of goods to a customer on
and incurred the following costs:
December 30, 2019, terms FOB Buyer, was recorded
as a sale upon shipment. The goods costing P600,000 Payment to architect P 300,000
were received by the customer on January 6, 2020. Payment for city council for approval
of building construction 150,000
QUESTIONS:
Payment for safety fence around
Based on the above and the result of your audit, answer
construction site 50,000
the following:
Payment to construction contractor 3,000,000
61. The adjusted cash as of December 31, 2019 is Payment for external driveways,
a. P2,680,050 c. P2,665,050 parking bays and safety lightings 500,000
b. P2,670,000 d. P2,664,600 Payment for safety inspections 30,000
Payment for removal of safety fence 20,000
62. The adjusted accounts receivable as of December 31, Payment for new fence surrounding
2019 is the factory 80,000
a. P11,242,200 c. P10,792,200 Payment for advertisements in the
b. P10,795,950 d. P10,690,200 local paper about the forthcoming
factory and its benefits to the local
63. The adjusted inventory as of December 31, 2019 is community 5,000
a. P15,015,000 c. P15,345,000 Payment for opening ceremony 60,000
b. P15,270,000 d. P15,615,000
g. Extra ordinary repairs on the old equipment were
made after it had been removed to the new site. The
64. The adjusted accounts payable as of December 31,
entity paid P50,000 for the repairs.
2019 is
a. P5,865,000 c. P5,520,000 QUESTIONS:
b. P5,610,000 d. P5,265,000 Based on the above and result of your audit, answer the
following:
65. The adjusted net sales for the year ended December
66. The net loss on disposal of property, plant and
31, 2019 is
equipment is
a. P131,107,500 c. P131,092,200
a. P280,000 c. P258,000
b. P131,095,500 d. P130,993,500
b. P180,000 d. P158,000
PROBLEM NO. 7
67. The cost of the new building is
The property, plant and equipment section of Fubuki
a. P4,130,000 c. P3,550,000
Corporation’s statement of financial position at December
b. P4,050,000 d. P3,530,000
31, 2018 appears as foll0ws:
Land P 800,000 68. The balance of equipment as of December 31, 2019 is
Building P1,500,000 a. P754,000 c. P692,000
Less: Accumulated 450,000 1,050,000 b. P708,000 d. P686,000
depreciation
Equipment P 69. The total cost of property, plant and equipment as of
700,000 December 31, 2019 is
Less: Accumulated 400,000 300,000 a. P5,888,000 c. P5,758,000
depreciation b. P5,838,000 d. P5,258,000
P2,150,000
70. Which of the following statement is not an audit
Because of good business conditions, the Company
procedure to obtain a reasonable assurance about the
decided to move to a more strategic location. Transaction
existence of property, plant and equipment?
on the transfer of location and other information are
a. Physically inspect the assets for a sample of
described below:
property, plant and equipment recorded in the
a. The land and building on the old site were sold for a plant ledger.
total of P1,700,000. b. Physically inspect the assets and examine
supporting documentation for additions to
b. Equipment, with a depreciated value of P150,000 property, plant and equipment.
(original cost of P400,000), was sold for P120,000. c. Verify that existing retirements and disposals are
c. New equipment, with an invoice price of P300,000, recorded and properly valued.
was purchased. A 2% discount was allowed. The hauler d. Examine lease and loan agreements to identify any
was paid P1,000 for delivery of the equipment to the liabilities that should be recorded.
new site and P3,000 was spent on installation.
d. The land were the Company moved to was a gift by  GOD BLESS 
the company president. It has an appraised value of
P1,000,000.
e. A new equipment with an invoice cost of P150,000 was
purchased. The Company paid P103,000 in cash and
was granted a trade-in allowance of P47,000 on a used
equipment which had a cost of P40,000 and
accumulated depreciation of P15,000.

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