ACCO30053-AACA1 Final-Examination 1st-Semester AY2021-2022 QUESTIONNAIRE

Polytechnic University of the Philippines
Sta. Mesa Manila

ACCO 30053 – Auditing and Assurance: Concepts and Application Part 1
FINAL EXAMINATION
(Audit Planning, Misstatements, Audit of Cash, Receivables, Inventories,
Fixed Assets, Intangible Assets and related accounts)
Name: _________________________________________ Date: ___________ Section: ________

General Instruction: Select the letter of your choice in MS Teams. For problem solving, compute for
the required for each cases presented and show your computations. For items with specific instructions,
follow that instruction. Goodluck and God Bless you all!!
CASE 1 – Audit of Misstatement in the Financial Statement

“Crush Mo Landing on You, Naol Diba Company” reported the following amounts of net income for the
years ended December 31, 2019, 2020 & 2021.
2019 P317,000
2020 350,000
2021 382,000
You are performing the audit for the year ended December 31, 2021. During your examination, you
discovered the following errors:
a) As a result of errors in the physical count, ending inventories were misstated as follows:
December 31, 2020 P41,000 understated
December 31, 2021 32,000 overstated
b) On December 29, 2020, the entity recorded as a purchase, merchandise in transit which cost
P45,000. The merchandise was shipped FOB Destination and had not arrive until January 3, 2021.
The merchandise was not included in the ending inventory of 2020.
c) The entity records sales on the accrual basis but failed to record sales on account made near the
end of each year as follows:
2019 P40,000
2020 55,000
2021 65,000
d) The company failed to record accrued office salaries as follows:

December 31, 2019 P45,000
December 31, 2021 P60,000
e) On July 31, 2019, the company acquired a three-year insurance policy amounting to P180,000 and
was recorded as insurance expense in 2019.
1. How much is the correct net income for year 2019?

a. P457,000
b. P462,000
c. P467,000
d. P472,000

a. P436,000
b. P476,000
c. P496,000
d. P526,000

a. P128,000
b. P137,000
c. P142,000
d. P154,000
4. The physical count of inventory of a retailer was higher than shown by the perpetual records.
Which of the following could explain the difference?
a. Inventory items had been counted, but the tags placed on the items had not been taken off the
items and added to the inventory accumulation sheets.
b. Credit memos for several items returned by customers had not been recorded.
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c. No journal entry had been made on the retailer's books for several items returned to its
suppliers.
d. An item purchased "FOB shipping point" had not arrived at the date of the inventory count and
had not been reflected in the perpetual records.
5. Of the following, which is the most efficient audit procedure for testing whether accrued interest
earned was recorded and included in the computation of net income during the period?
a. Tracing interest declarations to an independent record book.
b. Recomputing interest earned.
c. Confirming interest rate with the issuer of the bonds.
d. Vouching the receipt and deposit of interest checks.
CASE 2 – Audit of Cash and Cash Equivalents

In the course of the audit of “Hindi sa Pinag Ooverthink Kita Pero Baka May Kachat Syang Iba
Company’s” cash in bank for the year ended December 31, 2021 , you ascertained the following
information:
November 30 December 31
Cash per books P530,500 P?
Cash per bank statements 510,000 520,500
Deposits in transit 260,100 ?
Outstanding checks 162,600 220,400
Bank service charges 2,500 2,700
Insufficient fund check 10,500 12,000
Company's notes receivable collected by bank 130,000 125,000
The bank statement and the company’s cash records show the following totals:
Checks and debit memos per bank statement P470,500
Cash receipts per cash record 490,500
Cash disbursements per cash records 450,000
Deposits and credit memos per bank statement 481,000
During the course of your audit, you ascertained the following information:
a. A P40,000 book debit error in November was corrected in December.
b. A P25,000 withdrawal of Nag-overthink Corporation was erroneously credited by the bank in
company’s account in December.
c. A P12,500 disbursement check was recorded in cash disbursement journal in November at P2,500.
The error was discovered and corrected in December.
d. A P10,000 customer collection was recorded in December at P1,000, the error was detected and
corrected in December.
e. You suspect an unrecorded disbursement in the month of December.
Determine the following as a result of your audit:

6. How much is the amount of Deposit in transit in the month of December?
a. P275,400
b. P282,500
c. P289,600
d. P291,700
7. How much is the amount of unrecorded disbursements in the month of December?

a. P116,600
b. P134,500
c. P142,600
d. P150,700
8. How much is the correct cash balance as of December 31, 2021?

a. P485,500
b. P528,300
c. P564,700
d. P607,500
9. If the auditor uses a proof of cash as one of its analytical procedures in audit of cash balance, the
auditor most likely:
a. Assess the control risk at a low level.
b. Assess the detection risk at a low level.
c. Suspect any unauthorized disbursements during the period under audit.
d. Believe that cast balance is reasonably presented in the statement of financial position.
10. In the procedure performed by the auditor in the above case, the proof of cash is used to?
a. Determine the amount of disbursements that should have been recorded in the company’s
book during the period.
b. Check that cash balance recorded per book is at reasonable level and provide no adjustment.
c. Reconcile the cash balance as of November 30 and December 31, with no considerations of
any receipts and disbursements during the two period.
d. To assists the accountant in recording debit memos and credit memos.
CASE 3 – Audit of Receivables and Related Accounts

In connection with the audit of the financial statements of “Friend Penge Advice, Nagchachat Sya Ulet
Company”, the audit manager provided you the instructions to examine the details of the company’s
accounts receivable.
You have extracted the following balances from the unadjusted trial balance prepared by the client as
of December 31, 2021:
Accounts receivable P1,300,000
Allowance for bad debts – beginning 25,000
The details of the subsidiary ledger given by the client includes the following composition of accounts
receivable:
Trade installment receivable due in 15 months P200,000
Past due trade accounts receivables 165,000
Advances to employees 20,000
Receivable from customer arising from sale of goods 312,000
Interest receivable on notes 8,000
Trade accounts receivable – assigned 210,000
Trade accounts on which post – dated check is held 125,000
Trade accounts known to be worthless 10,000
Trade accounts receivable in which P5,000 is definitely uncollectible 265,000
Accounts with credit balances (15,000)
Total per subsidiary ledger P1,300,000
Audit notes:
a. On December 31, 2021, an aging of accounts receivable indicated the following:
% of total receivable Probability of collection
Age group amount in subsidiary ledger after adjustment
30 days and less 65% 98%
Between 31 and 60 days 20% 95%
Between 61 and 90 days 10% 80%
Over 90 days 5% 70%
b. The credit balance in customers account represents collection from a customer whose account has
been previously written off as uncollectible in prior period.
c. Merchandise billed for P18,000 were consigned to Tori Box Store on December 28, 2021. The
goods cost P7,500 and the delivery of goods were recorded as sale in December.
d. Credit memo for customer returns for damaged goods worth P27,000 in relation to invoice dated
October 16, 2021 was recorded in January 3, 2022.
e. A total of P38,500 was provided in prior quarters as uncollectible.

11. How much is the correct balance of allowance for bad debts as of December 31, 2021?
a. P111,546
b. P111,756
c. P96,006
d. P68,016
12. How much is the correct bad debts expense in its 2021 profit or loss?
a. P96,006
b. P86,016
c. P60,516
d. P50,516
13. How much is the amount of trade accounts receivable reported in its December 31, 2021 statement
of financial position?
a. P1,165,984
b. P1,158,984
c. P1,136,244
d. P1,127,244
14. Which of the following should an auditor perform in audit of accounting estimates for bad debts
expense?
a. inquiry with the policy of providing allowance and recompute the balances independently.
b. ask to confirm the balance of the receivables and multiplied by % uncollectible during the
period based on prior year estimated of bad debts.
c. ask for the computation of bad debts expense during the period and ensure that the schedule
of computation was signed by the credit and collection manager to ensure reliability.
d. Inquiry with the management of the customer’s account that was written-off during in prior
period that has been recovered during the period.
15. In the procedures made by the auditor above, how should the non-trade receivables were treated?
a. deducted in the accounts receivable balance.
b. included in the accounts receivable balance.
c. allowance was provided.
d. Included in bad debt expense.
CASE 4 – Audit of Inventories and Related Accounts

You are auditing the inventories account of “Bumababa Pala Ang Mga Tala Company” for the year
2021. The following were noted during the course of your audit:
Physical inventory, November 30, 2021 1,486,000

Physical inventory, December 31, 2021 1,625,000
Sales for the year ended December 31, 2021 4,400,000
Purchases for the year ended December 31, 2021 3,275,000
The following transactions were recorded as purchases for the month of December 2021:
a. Goods worth P125,000 were held on consignment from Nayomi Co. had been included in the
physical count because it is not yet sold as of December 31, 2021.
b. Goods costing P240,000 were purchased on credit from Amor Co. on December 27, 2021 on FOB
shipping point terms. The goods were shipped on December 28, 2021 but as of December 31 they
have not arrived yet.
c. Goods costing P150,000 were purchased on credit (FOB Destination) from San Miguel Co. on
December 28, 2021. The goods were received on December 29, 2021.
d. On December 30, 2021, purchased goods costing P120,000 on credit (FOB shipping point) terms
to Pirate Corp. for P190,000. The goods were dispatched from the warehouse of the seller on
December 30, 2021 but had not received until January 2, 2022.
e. On December 29, 2021, inventory was purchased amounting to P200,000 but still in transit as of
December 31, 2021 at terms FOB shipping point. The invoice cost excludes P10,000 freight cost.
f. On December 30, 2021, inventory was purchased with invoice price of P140,000, still in transit, Free
Along Side, invoice cost includes delivery cost alongside the vessel of P15,000 but excluding the
cost of shipment P25,000.
g. On December 31, 2021,inventory purchased and received with an invoice cost of P275,000, CIF
(excluded in the invoice cost was insurance cost and freight totaling P15,000)
h. Inventories were purchased with buyback agreement amounting to P125,000, these inventories
were delivered and received on December 26, 2021.
The following transactions were recorded as sales for the month of December 2021:
i. Sale of goods for P225,000 was recorded in the company’s books on December 31, 2021. Your
further inquiry reveals that the goods were shipped to buyer on December 31, term FOB shipping
point.
j. Shipment of goods on December 29, 2021 terms FOB destination was recorded as sales for
P360,000 (cost of P210,000) in December. The goods were received by the buyer on January 3,
2022.
k. A shipment in December was made to a loyal customer, the invoice price of this shipment was
P200,000. This invoice was sold at cost.
16. How much is the adjusted balance of purchases as of December 31, 2021?
a. P3,025,000
b. P3,045,000
c. P3,060,000
d. P3,075,000
17. How much is the adjusted balance of inventory as of December 31, 2021?
a. P2,110,000
b. P2,320,000
c. P2,430,000
d. P2,445,000
18. How much is the cost of sales for the period ending December 31, 2021?
a. P2,106,000
b. P2,116,000
c. P2,216,000
d. P2,226,000
19. How much is the adjusted balance of sales as of December 31, 2021?
a. P4,400,000
b. P4,200,000
c. P4,175,000
d. P4,150,000
20. When auditing merchandise inventory at year end, the auditor performs a purchase cutoff test to
obtain evidence that?
a. No goods held on consignment for customers are included in the inventory balance.
b. No goods observed during the physical count are pledged or sold.
c. All goods owned at year end are included in the inventory balance
d. All goods purchased before year end are received before the physical inventory count.
CASE 5 – Audit of Fixed Assets and Related Accounts

You are auditing the property, plant and equipment of “Pawo Pawo Gie Company”. This amount
represents the total amount incurred by Pawo Pawo Gie Company during the actual construction of its
own manufacturing plant. The cost incurred were back up by borrowings because the company do not
have enough cash to support the construction and operation at the same time.
2020 cost of construction Amount

January 1 P8,000,000
May 1 9,000,000
2021 construction cost Amount

July 1 10,000,000
December 1 11,000,000
Amount borrowed and outstanding during the period of construction:

Borrowings Date borrowed Amount
Notes payable; 2 year; 10%; specific January 1, 2020 P4,000,000
Bank loan payable; 1 year; 8%; specific January 1, 2020 3,000,000
Notes payable; 3 years; 5%; general January 1, 2020 9,000,000
Bonds payable; 2 years; 12% general January 1, 2021 12,000,000
In 2020, the proceed from bank loan payable was used to purchase equity classified as FVTPL. The
initial fair value of the 15,000 shares was P12. Dividends were received on these shares at P7 per
share in 2020. The shares were sold in 2020 with no gain or loss.
The building was completed and ready for intended use at the end of 2021 with estimated useful life of
15 years. The company estimated that P9,800,000 will be incurred to dismantle the building at the end
of its useful life. Discount rate applicable is 6%. The revaluation model is used for this type of asset and
depreciated using straight-line method.
In December 31, 2022, the building is assed to have fair value of P46,000,000 and if it will be sold a
total of P6,000,000 will be incurred to disposed the asset.
At the beginning of 2024, the management determine that the asset useful life is 12 years from the date
of initial recognition. At December 31, 2024, the asset is assessed to have fair value of P47,000,0000
with cost to sell of P5,000,000.

21. How much is the initial cost of the self-constructed building?
a. P44,726,988
b. P45,156,348
c. P45,918,278
d. P46,129,628
22. Statement 1: The amount of gain on recovery reported in profit or loss in 2024 is P1,659,480.
Statement 2: The amount of revaluation surplus reported in equity as of December 31, 2024 is
P6,978,229
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false
23. The carrying value of the building in the statement of financial position as of December 31, 2023 is?
a. P39,135,501
b. P37,142,857
c. P35,221,951
d. P33,428,571
24. The carrying value of the building in the statement of financial position as of December 31, 2024 is?
a. P42,000,000
b. P45,000,000
c. P46,261,291
d. P46,826,129
25. Which of the following statements about the audit of fixed assets is not correct?
a. The emphasis on auditing fixed assets is on verification of current-period acquisitions.
b. Failure to record the acquisition of a fixed asset affects the income statement until the assets is
fully depreciated.
c. The primary accounting record for manufacturing equipment and other property, plant and
equipment are generally a fixed asset master file.
d. Manufacturing equipment and current assets are normally audited in the same fashion
regardless of the activity within a particular account.
CASE 6 – Audit of Inventories and Related Accounts

Bears Company offers three products to its customers. The following are the information regarding
these products:
a. Bears uses First-in, first-out method in calculating the cost of goods sold for the three products.
b. The products have the following selling prices:

Product Selling Price per unit
Griz P80
Pan 100
Ice 70
c. Transactions for the year ended December 31, 2020 were summarized below:
Transactions Griz Pan Ice
Beginning Inventory 30,000 units @ P65 25,000 units @ P85 20,000 units @ P55
January-March Purchases 45,000 units @ P70 30,000 units @ P87 38,000 units @P50
April-June Purchases 25,000 units @ P72 30,000 units @ P87 25,000 units @ P58
July-September Purchases 38,000 units @ P60 40,000 units @ P80 32,000 units @ P50
October-December Purchases 42,000 units @ P65 35,000 units @ P82 20,000 units @ P53
Sales for the whole year 155,000 units 145,000 units 125,000 units
d. On December 31, 2020, there is a suppliers’ reduction of prices from the most recent purchase
prices by 25%, 15% and 5% for Products Griz, Pan and Ice, respectively. Because of this, Bears
decided to reduce their selling prices by 10% effective January 1, 2021.
e. Transactions for the year ended December 31, 2021 were summarized as follows:
Transactions Griz Pan Ice
January-June Purchases 80,000 units @ P50 80,000 units @ P65 70,000 units @ P48
July- December Purchases 75,000 units @ P53 50,000 units @ P75 50,000 units @ P55
Sales for the whole year 165,000 units 135,000 units 115,000 units
f. The company reasonably estimates cost to sell applicable for 2020 and 2021 ending inventory at
12% and 20%, respectively.
Determine if the following statements is/are true or false as a result of your audit:
26. Statement 1: The total cost of ending inventory as of December 31, 2020 is P5,175,000.
Statement 2: The total purchases for the year ended December 31, 2020 is P27,260,000.
Statement 3: The testing of lower of cost and net realizable value addresses the accuracy
assertion for inventories.
a. True, True, True
b. True, True, False
c. False, True, False
d. False, False, True
e. False, False, False
27. Statement 1: Assuming that the company’s policy is to account for inventory write down using
allowance method, the beginning balance of allowance for inventory write down for 2020 is
P369,000.
Statement 2: Assuming that the company’s policy is to account for inventory write down using
allowance method, the total amount of inventories presented in the December 31, 2020 statement
of financial position is P3,832,000.
allowance method, the total amount of inventories presented in the December 31, 2021 statement
of financial position is P2,271,000.
a. True, True, True
b. True, False, False
d. False, True, True
28. Statement 1: Assuming that the company’s policy is to account for inventory write down using direct
method, the total amount of inventories presented in the December 31, 2020 statement of financial
position is P3,832,000.
Statement 2: Assuming that the company’s policy is to account for inventory write down using direct
method, the total amount of inventories presented in the December 31, 2021 statement of financial
position is P2,271,000.
Statement 3: Assuming that the company’s policy is to account for inventory write down using direct
method, the cost of sales for the period ended December 31, 2020 is P28,603,000.
a. True, True, True
allowance method, the allowance for inventory write-down at December 31, 2020 is P83,000.
allowance method, the loss on inventory write-down at December 31, 2021 is P99,000.
Statement 3: Total purchases for the year 2021 is P23,035,000.
a. True, True, True
allowance method, the allowance for inventory write-down at December 31, 2021 is P16,000.
Statement 2: The cost of ending inventory at December 31, 2020 is P3,925,000.
Statement 3: The selling price per unit of Product Pan is at P79 per unit.
a. True, True, True

You were auditing the fixed asset accounts of Polar Company. The following procedures were
performed:
a. You requested the lapsing schedule of the company and summarized it as follows:
Machinery Leasehold
Land and and Furniture and Improve-
Building equipment fixtures ments Total
Acquisition Cost
January 1, 2020 P25,000,000 P10,000,000 P7,000,000 P5,000,000 P47,000,000
Additions 3,000,000 - 1,500,000 - 4,500,000
Disposals - - - - -
December 31, 2020 28,000,000 10,000,000 8,500,000 5,000,000 51,500,000
Additions - 750,000 - 600,000 1,350,000
Disposals 5,000,000 400,000 - - 5,400,000
December 31, 2021 23,000,000 10,350,000 8,500,000 5,600,000 47,450,000
Accumulated
Depreciation
January 1, 2020 P1,250,000 P1,500,000 P1,400,000 P3,000,000 P7,150,000
Depreciation
Expense 1,325,000 1,275,000 1,400,000 1,000,000 P5,000,000
Disposals - - - - -
December 31, 2020 2,575,000 2,775,000 2,800,000 4,000,000 12,150,000
Depreciation
Expense 1,362,500 1,275,000 1,400,000 1,000,000 5,037,500
Disposals 187,500 - 100,000 - 287,500
December 31, 2021 3,750,000 4,050,000 4,100,000 5,000,000 16,900,000
Carrying Value
December 31, 2020 P25,425,000 P7,225,000 P5,700,000 P1,000,000 P39,350,000
December 31, 2021 P19,250,000 P6,300,000 P4,400,000 P600,000 P30,550,000
Further investigation revealed the following details for each asset:

• All assets, except for Leasehold Improvements, were acquired on January 1, 2019.
• Leasehold Improvements were acquired on December 31, 2016.
• Land and building had a fair value of P12,000,000 and P18,000,000, respectively, on January 1,
2019.
b. You also requested the depreciation policy of the company and it was provided as follows:
Asset Depreciation Method Estimated Useful Life
Land and building Straight line 20 years
Machinery and equipment 150% declining balance 10 years
Furniture and fixtures SYD 5 years
Leasehold improvements Straight line 5 years
c. Test of additions for 2020 were investigated and noted as follows:
Per supporting documentations Date the
asset Date of
became commencem
PPE Date available ent of
Classification Asset description purchased Amount for use depreciation
Land and Land with unusable June 30, June 30,
building old building June 30, 2020 3,000,000 2020 2020
Furniture and September 30, December September
fixtures Office furniture 2020 1,500,000 31, 2020 30, 2020
Further investigation revealed the following information:

• Purchased land and building was intended for capital appreciation. Additional cost of razing old
building for P350,000 was incurred but was debited to Miscellaneous Expenses.
• Furniture and fixtures were delivered by the vendor on December 31,2020.
d. Test of additions for 2021 were investigated and noted as follows:

Per supporting documentations Date the
asset Date of
became commencem
PPE Date available ent of
Classification Asset description purchased Amount for use depreciation
Machinery and January 1, January 1, January 1,
equipment office equipment 2021 750,000 2021 2021
Improvements on
Leasehold separate office March 31, June 30, March 31,
improvements space 2021 600,000 2021 2021
Further investigation revealed that improvements on leased asset was finished on June 30, 2021.
e. Test of disposals for 2021 revealed the following information:

Asset description Disposal date per sale Sale Proceeds
Land and building acquired on June 30,2020 October 1, 2021 5,000,000
Machinery and equipment initially acquired at P700,000 June 30, 2021 400,000
f. Vouching of repairs and maintenance expenses were noted as follows:

Name of vendor Payment Date Amount Details of the transaction
Nanlamig construction January 1, 2021 1,000,000 Major renovation of building floors.
Further investigation on this revealed that this renovation significantly improves the condition of the
asset beyond its originally assessed standard of performance. The useful life of the land and building
shall be 25 years from the original date when it was ready for intended use of the management.

31. How much is the total depreciation expense recognized for the year ended December 31, 2020?
32. How much is the total depreciation expense recognized for the year ended December 31, 2021?
33. How much is the correct balance of accumulated depreciation as of December 31, 2021?
34. How much is the total carrying value of Property, Plant and Equipment reported in the 2021
statement of financial position?
35. Statement 1: On June 30, 2021, the recorded gain on disposal of asset is P67,819.
Statement 2: On June 30, 2020, the capitalized cost of Land under property, plant and equipment
is P3,350,000.
Statement 3: The adjusted cost of property, plant and equipment on December 31, 2020 is
P50,000,000.
a. True, True, True
You were assigned to audit the fixed asset accounts of Red Panda Company that owns several
properties. The following information were noted:
a. Red Panda purchased a building on January 1, 2020 for P30,000,000. At this date, the building has
a useful life of 40 years. The building was rented out to different tenants at monthly rentals.
b. The following entries were made for this account in 2020 and 2021:
Date Particulars Debit Credit
January 1, 2020 Building 30,000,000
Cash 30,000,000
To record the acquisition of building.
December 31, 2020 Depreciation expense 750,000

Accumulated depreciation 750,000
To record depreciation on building
December 31, 2021 Depreciation expense 750,000

Accumulated depreciation 750,000
To record depreciation on building
c. The policy of the company states the following:

• Properties under PPE are depreciated using the following methods:
Asset Depreciation Method
Building Straight line
Machinery and equipment 150% declining balance
Furniture and fixtures SYD
Leasehold improvements Straight line
• Properties under investment property are accounted for using fair value method.
d. At the end of each year, the property has the following fair value:
December 31, 2020 P28,000,000
December 31, 2021 32,000,000
December 31, 2022 31,000,000
Based on the results of your audit, the proposed adjusting journal entry on December 31, 2021 should
include (assuming the 2021 books are still open): (Indicate the amount that would be debited (credited)
for each account. If the account would be debited, just type the amount. Eg: 123,456; if the account
would be credited, type the amount in parenthesis. Eg: (123,456); if the account is not included in the
PAJE, type 0)
36. Retained earnings
37. Investment Property
38. Building
39. Depreciation Expense
40. Fixed assets are judged to be leased susceptible to fraud because:
a. Internal controls for fixed assets are inherently effective.
b. The depreciated values are always lower than the costs.
c. The amount recorded are immaterial for most companies.
d. The inherent risk is usually low.
CASE 9 – Audit of Intangible Assets and Related Accounts

The following information were gathered in connection to your audit of Intangible Assets for
Honeybear Company:
a. Trademark. The trademark acquired on January 30, 2020 has remaining 5 years legal life. It is
noted that this asset will be renewed indefinitely in the future without any problem. The journal
entries for 2020 and 2021 for this account were as follows:
June 30, 2020 Trademark 750,000
Cash 750,000
To record the purchase of trademark
December 31, 2020 Amortization expense-trademark 75,000
Accumulated Amortization-trademark 75,000
To record amortization of trademark
December 31, 2021 Amortization expense-trademark 150,000

Accumulated Amortization-trademark 150,000
To record amortization of trademark
b. Patent. Honeybear has developed a new machinery that is unique and considered very valuable to
the business industry. The following costs were capitalized on January 1, 2021 by the company:
Research and development expenses P550,000
Materials used for construction of machine 450,000
Labor costs of research, development and building the machinery
(70% was spent on actually building the machine) 700,000
Total P1,700,000
The patent was registered on April 1, 2021 and was expected to be used for 5 years. The machine
built has an expected useful life of 5 years. The following entries were made in 2021 regarding this
account:
January 1, 2021 Patent 1,700,000
Cash 1,700,000
To record the capitalization of patent
April 1, 2021 Legal expenses 350,000

Miscellaneous expenses 250,000
Cash 600,000
To record legal costs of securing the
patent and expenses for the patent
application requirements
December 31, 2021 Amortization expense-patent 340,000

Accumulated Amortization-patent 340,000
To record amortization of patent
Audit notes:
a. The management estimates that trademark will generate cash flows of P80,000 on December 31,
2020 and P60,000 on December 31, 2021.
b. The estimated annual net future cash flows from the patent’s continued use was P200,000 over its
remaining useful life on December 31, 2021.
c. The prevailing market rate of interest for 2020 and 2021 was 10%.

41. How much is the correct cost of patent?
42. How much is the correct cost of trademark?
43. How much is the carrying value of intangible assets as of December 31, 2021?
44. What is the total amount chargeable to expense for the year 2021 as a result of your audit?
45. Statement 1: The proposed adjusting journal entry at December 31, 2021 includes a total credit to
Retained earnings of P85,000.
Statement 2: The proposed adjusting journal entry at December 31, 2021 includes a total credit to
Patent of P1,100,000.
Statement 3: The proposed adjusting journal entry at December 31, 2021 includes a total debit to
Impairment Loss of P150,000.
a. True, True, True
CASE 10 – Audit of Intangible Assets and Related Accounts
Pororo Inc. is considering acquiring Orange Company and uses the following data for analysis:
Average annual sales for the past 5 years P2,000,000
Average annual operating expenses for the past 5 years 1,200,000
Average annual cost of goods sold for the past 5 years 7,200,000
Annual increase in depreciation and amortization 750,000
Expected annual increase in wages not to be recovered by increase in revenue 400,000
The book value of Orange’s net identifiable net assets is P8,500,000. The appropriate rate of return is
20%. Revaluations were summarized as follows:
Revaluation of inventory to fair value P500,000
Increase in allowance for bad debts 50,000
Revaluation of property, plant and equipment to fair value 250,000
Revaluation of bonds payable due to decline in interest 350,000
Fair value of patent 1,250,000
Any excess annual earnings are expected to last for the next 5 years.

46. How much should Pororo recognize as goodwill upon acquisition assuming the excess annual
earnings as capitalized at 10%?
47. How much should Pororo recognize as goodwill upon acquisition assuming the excess annual
earnings are expected to occur at the end of each period for 5 years (discount rate at 10%)?
48. How much should Pororo recognize as goodwill upon acquisition assuming the average annual
earnings are capitalized at 20%?
49. How much is the total value of the company acquired?
50. An auditor most likely would review or recompute amortization of intangible assets and determine
whether the amortization period is reasonable in support of management’s financial statement
assertion of
a. Completeness
b. Existence
c. Valuation
d. Accuracy
*** End of Final Examination in AACA1***

ACCO30053-AACA1 Final-Examination 1st-Semester AY2021-2022 QUESTIONNAIRE

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ACCO30053-AACA1 Final-Examination 1st-Semester AY2021-2022 QUESTIONNAIRE

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Polytechnic University of the Philippines

Sta. Mesa Manila

Name: _________________________________________ Date: ___________ Section: ________

CASE 1 – Audit of Misstatement in the Financial Statement

d) The company failed to record accrued office salaries as follows:

1. How much is the correct net income for year 2019?

2. How much is the correct net income for year 2020?

3. How much is the correct net income for year 2021?

CASE 2 – Audit of Cash and Cash Equivalents

Determine the following as a result of your audit:

7. How much is the amount of unrecorded disbursements in the month of December?

8. How much is the correct cash balance as of December 31, 2021?

CASE 3 – Audit of Receivables and Related Accounts

Determine the following as a result of your audit:

CASE 4 – Audit of Inventories and Related Accounts

Physical inventory, November 30, 2021 1,486,000

CASE 5 – Audit of Fixed Assets and Related Accounts

2020 cost of construction Amount

2021 construction cost Amount

Amount borrowed and outstanding during the period of construction:

Determine the following as a result of your audit:

CASE 6 – Audit of Inventories and Related Accounts

b. The products have the following selling prices:

CASE 7 – Audit of Fixed Assets and Related Accounts

Further investigation revealed the following details for each asset:

Further investigation revealed the following information:

d. Test of additions for 2021 were investigated and noted as follows:

e. Test of disposals for 2021 revealed the following information:

f. Vouching of repairs and maintenance expenses were noted as follows:

Determine the following as a result of your audit:

December 31, 2020 Depreciation expense 750,000

December 31, 2021 Depreciation expense 750,000

c. The policy of the company states the following:

CASE 9 – Audit of Intangible Assets and Related Accounts

December 31, 2021 Amortization expense-trademark 150,000

April 1, 2021 Legal expenses 350,000

December 31, 2021 Amortization expense-patent 340,000

Determine the following as a result of your audit:

Determine the following as a result of your audit:

*** End of Final Examination in AACA1***

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Name: ___________________________________ Date: _ Section: ____

* End of Final Examination in AACA1*