SCOPE

In this module, the learner is able to demonstrate understanding of key concept, uses
and importance of Auditing and Assurance: Specialized Industries in real business
world.

OVERVIEW and OBJECTIVES

This course covers detailed approaches to problems and situations normally
encountered in the independent examination of financial statements of entities
engaged in special industries such as banking and financial institutions, real estate,
business process outsourcing (BPO) entities, health maintenance organizations (HMO),
holding entities, logging and mining entities.

DISCUSSION OF TOPICS:

Chapter 1:
AUDIT OF INVESTMENTS

Auditing and Assurance: Specialized Chapter Objectives:

This chapter should enable you to know and understand:
Industries MODULE  The audit program for investments.
 The audit objectives and procedures to be done.

Audit Investments

Overview

As auditors, we usually audit investments that the client has on their financial
statements by testing various audit assertions including existence, completeness,
valuation, and rights and obligations.

Clariza C. Gamboa
AA: Specialized Industries Professor
In the audit of investments, the inherent risk of investments involves more on the
existence and valuation of their balances. This is due to the risk of overstatement of
investments is higher than the risk of an understatement and an overstatement, in
this case, could be due to fraud.
The inherent risk of investments is that client’s investments may be stolen and their
balances may be overstated to cover up the fraud. Additionally, as there are many
types of investments, investments may be wrongly classified, either intentional or
unintentional, resulting in improper valuation. Another issue concerning the valuation
assertion of investment account is the lack of the client’s staff knowledge and the
complexity of valuation itself.
Audit Assertions for Investments
It is very important for us to design and perform proper audit procedures in order to
obtain sufficient appropriate audit evidence about the client’s investments. This is so
that we can make a proper conclusion regarding significant assertions of the client’s
investment accounts.
In the audit procedures for investments, we need to test various audit assertions,
including existence, valuation, completeness, and rights and obligations.

In the audit of investments, we usually test the audit assertions that are included in Completeness
the table below:
In the audit of investments, we test completeness assertion to verify whether all
investment transactions that occurred during the year have actually been recorded.
Audit assertions for investments
Example: tests of completeness of the investments include:
Investments reported on the financial statements really  Request the schedule of all investments from the client (if the client doesn’t
Existence
exists at the reporting date. have the schedule, request them to prepare one)
 Verify the arithmetic accuracy of the schedule by footing and cross-footing
Investment balances truly reflect their actual economic value  Reconcile the beginning balance in the schedule to the previous year audited
Valuation
as at reporting date. balance
 Examine the transactions around year-end to ensure all investments have been
All investments that should have been recorded have actually recorded in the correct accounting period
Completeness
been recorded.
Existence
Rights and The client has ownership rights for all investments as of the
obligations reporting date.
We test the existence assertion to ensure that the investments balances shown on the
financial statements really exist at the reporting date.
Investments have been properly classified and appropriately
Presentation and
disclosed (e.g. any restrictions) in the notes to financial
disclosure Example: tests of existence in investments audit include:
statements.
 Perform direct confirmation with the brokerage (for investments held by
broker)
 Physically inspect all investments (for investments held by the client)
Existence and valuation assertions are usually the most relevant assertions in the audit  Vouch new purchases and disposals of investments to supporting documents,
of investments. This is because the client may intentionally overstate the balances of e.g. broker’s advice
investments. Hence, we need to pay more attention to the areas related to these two
audit assertions. Valuation

Audit Procedures for Investments In the audit of investments, we test the valuation assertion to ensure that the
investment balances are mathematically correct and their values reflect the true
economic value as at the reporting date.
Example: tests of valuation assertion in the audit of investments: COLA COMPANY:
 Vouch the investment balances to the actual market value at year-end  Net income before adjustment P800,000
 Determine whether gains or losses, as a result of changes in market value, Unrealized loss 90,000
have been properly recorded Net income, adjusted P710,000
 Recalculate interest income or dividend income from investments
 Net income before adjustment P800,000
Rights and obligations Unrealized gain 38,000
Net income, adjusted P838,000
We test the rights and obligations assertion to ensure that the client has the right and
ownership of all investments shown on the financial statements as at reporting date.
Our concern here is that there may be some restrictions that are placed on INVESTMENT IN EQUITY SECURITIES
investments.
Encantadia Corp. has a policy of investing idle cash in equity securities. It has made
periodic investments in its principal supplier, Devas Company. Encantadia currently
Example: tests of rights and obligations in the investment audit include:
owns 12% of Devas outstanding ordinary shares.
 Inquire management about any restrictions placed on investments.
 Examine related documents to determine whether there are any restrictions on
Amihan, Encantadia assistant controller, has gathered the following information about
investments.
the company’s investments in equity securities.
Application:
1. Encantadia has trading equity investments in Asnamon Corp and Etheria Company.
TRADING SECURITIES
During 2021, Encantadia purchased 100,000 shares of Asnamon Corp. for
P4,200,000; these shares have a fair value of P4,800,000 at December 31, 2021.
Cola Company buys and sells securities expecting to earn profits on short-term
The investment in Etheria consists of P50,000 shares acquired in March 2021 at
differences in price. During 2021, Cola Company purchased the following trading
P60 per share and currently has a value of P2,160,000.
securities.
2. Encantadia’s 12% ownership in Devas Company has a fair value of P66,675,000
Fair Value on December 31, 2021. On initial recognition, Encantadia made an irrevocable
Security Cost
12/31/2021 election to present in other comprehensive income subsequent changes in fair
A 195,000 230,000 value of this investment in equity securities. The securities were purchased prior
B 300,000 157,000 to 2020 for P67,500,000 and was valued at P64,500,000 on December 31,2020.
C 660,000 678,000 Encantadia has not changed its holdings in the current year.

Before any adjustments related to these trading securities, Cola Company had net Required:
income of P800,000.  Amount of unrealized loss reported as component of OCI on Encantadia’s
December 31, 2020 statement of comprehensive income.
Required:  Cumulative unrealized gain/loss to be shown on the statement of changes in equity
 Cola’s net income after making any necessary trading security adjustments. for the year ended December 31, 2021.
 Cola’s net income be if the fair value of Security B were 285,000  Amount of unrealized gain/loss reported on Encantadia’s income statement for the
year ended December 31, 2021.
Solution:
Solution: 1) The carrying value of the debt securities on December 31, 2021 using the
 Fair Value, 12/31/2020 64,500,000 effective interest method
Acquisition cost 67,500,000 2) The interest income for 2021
Unrealized loss 3,000,000
Problem 2:
 Fair value, 12/31/2021 66,675,000 Cherries Company owns a 5% interest in CT Corporation, which declared a cash
Fair Value, 12/31/2020 64,500,000 dividend of P3,720,000 on November 27, 2021 to shareholders of record on December
Unrealized gain in 2021 2,175,000 20, 2014, payable on January 15, 2022. In addition, on October 15, 2021, Cherries
Unrealized loss in 2020 (3,000,000) Company received a liquidating dividend of P100,000 from BG Corporation. Cherries
Cumulative unrealized loss, 12/31/2021 (825,000) Company owns 6% of BG Corporation.
OR
Fair Value, 12/31/2021 66,675,000 Required:
Acquisition cost 67,500,000 What amount of dividend income should be included in Cherries Company's income
Cumulative unrealized loss, 12/31/2021 (825,000) statement for the year ended December 31, 2021?

 240,000 unrealized loss Problem 3:

Star, Inc. received dividends from its investments in ordinary shares during the year
Cost Fair Value U gain/loss ended December 31, 2021 as follows:
Asnamon Corp. 4,200,000 4,800,000 600,000
Etheria (a) A cash dividend of P720,000 is received from MM Corporation (Star, Inc. owns a
3,000,000 2,160,000 (840,000) 2% interest in MM)
Company
Total 7,200,000 6,960,000 (240,000) (b) A cash dividend of P3,600,000 is received from BB Corporation (Star, Inc. owns a
30% interest in BB)
© A stock dividend of P18,000 shares from EE Company was received on December
15, 2021, on which date the quoted market value of EE's shares was P20 per share.
-End of Discussion- Star, Inc. owns less than 1% of EE ordinary shares.

SELF- CHECK TEST:
PROBLEM 1:
On January 1, 2021, L Corp. purchased debt securities for cash of P765,540 to be held
as financial assets at amortized cost. The securities have a face value of P600,000 and
they mature in 15 years. The securities carry fixed interest of 10% that is receivable
semi-annually, on June 30 and December 31. The prevailing market interest rate on
these debt securities is 7% compounded semi-annually.
Required:
What amount of dividend income should be reported by Star, Inc. in its 2021 income
statement?
Problem 4:
On June 30, 2021, Broccoli Company purchased 25% of the outstanding ordinary
shares of Bahay Co. at a total cost of P2,100,000. The book value of Bahay Co.'s net
assets on acquisition date was P7,200,000. For the following reasons, Brocolli was
willing to pay more than book value for the Bahay Co. shares:
- Bahay Co. has depreciable assets with a current fair value of P180,000 more than
their book value. These assets have a remaining useful life of 10 years.
- Bahay Co. owns a tract of land with a current fair value of P900,000 more than its
carrying amount.
- All other identifiable tangibe and intangible assets of Bahay Co. have a fair values
that are equal to their carrying amount.
Bahay Co. reported net income of P1,620,000, earned evenly during the current year
ended December 31, 2021. Also in the current year, it declared and paid cash
dividends of P315,000 to its ordinary shareholders. Market value of Bahay Co.'s shares
at December 31, 2021 is P9,000,000. Broccoli Company's financial year-end is
December 31.
Required:
1) The total amount of goodwill of Bahay Co. based on the price paid by Broccoli
Co.
2) The amount of investment income Broccoli should report in its income
statement for the year ended December 31, 2021 under fair value method.
3) The amount of investment income Broccoli should report in its income
statement for the year ended December 31, 2021 under equity method.
4) Under the equity method, the carrying value of Broccoli Company's investment
in ordinary shares of Bahay Co. on December 31, 2021 should be
5) The amount Broccoli Company should report in its December 31, 2021,
statement of financial position as its investment in Bahay CO. under the fair
value method.
Chapter 2:
AUDIT OF PROPERTY, PLANT AND EQUIPMENT
Chapter Objectives:
This chapter should enable you to know and understand:
 The audit program for PPE.
 The audit objectives and procedures to be done.
Audit procedures for Property Plant and Equipment (PPE)
- It is sometimes called the audit procedures for Non-Current Assets or Fixed Assets.
- It is really important to perform proper audit procedures for Fixed Assets in order
to obtain sufficient appropriate evidence.
- Property, Plant Equipment are material items on the balance sheet. There are
inherent risk on PPE and auditors should be more concerned about these items
during the audit.
Objective of Property Plant and Equipment (PPE) Audit
The objectives of the audit of property, plant and equipment (PPE) audit are to
determine that:
 The property plant and equipment (PPE) exists and owned by the business
organization;
 The PPE addition are authentic and it is recorded properly at its cost while such
costs are being able to distinguish from the repairs and maintenance expenses.
 Any disposal or retirements of PPE as well as the sales proceeds and other
related costs for such disposal are properly recognized and recorded in the
accounting book; and
 Last but not least, there is proper depreciation expense in relation to the PPE
are properly calculated and allocated based on its costs as well as the expected
life expectancy or estimated useful life and scraped value.
Risks and Control Deficiencies in Relation to PPE
Below are the key risks associated with the PPE that we commonly encounter so
far:
 An entity or management may intentionally account for or overstate the PPE
as well as the depreciation on such PPE.
 Some other expenses that should not be capitalized may have been incorrectly
capitalized.
 The depreciation method and the assessment of useful life of assets may be
used resulting the overstatement or understatement of the depreciation charge
into the profit and loss account.
 The capitalization of borrowing costs may have been incorrectly calculated and
capitalized as asset value.
 Assets may have loss but still recorded in the accounting book and recorded
the depreciation expense.
CONTROL DEFICIENCIES
Below are the examples of control deficiencies that we commonly encounter during
the course of the audit:
 There is no properly physical count of the assets. This raise doubt in the
existence of the assets.
  There is properly process and procedure for the disposal of assets.
 The segregation of duties have not been properly allocated for the
authorization of purchased, recording the assets as well as the depreciation
expense in the General Ledger (GL).
 Lack of competent person who manage and calculate the depreciation schedule
that may have doubt in the incurred depreciation recorded.
 There is no proper control on the reconciliation process between the assets
and depreciation schedule to the GL or Trial Balance (TB)
 No properly asset code tagged on each item of the assets resulting in difficulty
of performing the physical count of assets.
Key Assertions for Property Plant and Equipment (PPE) Audit
 Existence and Occurrence
The existence and occurrence assertion means that the property, plant and
equipment balance recognized in the financial statements actually exists at the
reporting date. Any addition or disposal of assets represented the asset acquired
and sold or scraped in the reporting year.
 Completeness
Completeness is ensuring that the PPE reported on the balance sheet includes all
PPE transactions occurring during the period. In addition any additions or disposal
incurred during the year should have been recorded.
 Rights and Obligations
The rights and obligations assertion means that the PPE included in the financial
statements at the reporting date belongs to the entity.
 Valuation
The valuation assertion is ensuring that the PPE balance included in the financial
statement truly reflects its economic value at the reporting date. In this assertion
the concern is about the net present or net book value of the PPE and there are
risk of overstatement of certain assets. Thus the PPE should have been correctly
stated at cost less accumulated depreciation and presented in the Balance Sheet
at net book value.
 Accuracy
In this assertion, all asset additions or disposals should have been recorded
correctly.
 Classification
In this assertion the concern is that there should be a proper classification between
fixed assets or non-current assets and current assets.
 Presentation and Disclosure
In this assertion the concern is to ensure all necessary disclosure has been made
in compliance with accounting policies and procedures.
Key Audit Procedures for Property Plant and Equipment (PPE) Audit
In order to easily understand about each types of audit procedures for Property Plant
and Equipment, we will group all those audit procedures into 9 categories as below:
Completeness
Under this section, the auditor perform the audit procedures to ensure and
confirm completeness of the PPE.
Below are the audit procedures that audit may carries out to ensure this assertions.
 At first, the auditor should confirm the opening balances with prior year
financial statements. The review should cover costs, accumulated depreciation
and the net book value of the PPE.
 The auditor should obtain the entity’s Trial Balance, General Ledger and
Financial Statements as well as the assets register for the period they are
auditing.
 They should review that a fixed asset register has been maintained properly
and the reliability of fixed asset listing.
 Auditor shall perform the reconciliation to agree the sample of assets that
physically exist as per the physical count procedure to assets register.
Existence
Under this section, the auditor perform the audit procedures to ensure and
confirm Existence of the PPE.
Below are the audit procedures that audit may carries out to ensure this assertions.
 The auditor should perform a physical count on those major assets acquired
during the year under audit and compare the physical assets with the entity’s
record.
 For the physical inspections, auditor shall pay attention to whether the asset
exist, are in use and in good condition. In addition, auditor shall ensure that
those assets are properly tagged with unique serial number.

Valuation
Under this section, the auditor perform the audit procedures to ensure and
confirm Valuation of the PPE.
Below are the audit procedures that audit may carries out to ensure this assertions.
 They should review the procedures and processes as per IAS 36 impairment
has been followed to assess impairment of asset every year.
 They should test the client’s provision for depreciation by developing an
estimate of the amounts to compare to the estimate of management.
 If the entity being audited adopted the revaluation model, auditor shall review
and verify the valuation and agree to the valuation certificate if any.
 The auditor shall need to reperform or recalculate the revaluation surplus
carried out by the valuer.
 If the entity adopted the revaluation model, the auditor shall confirm that the
valuation is performed on all assets. In addition, the valuation shall perform on
a regular basis.
Depreciation
Under this section, the auditor perform the audit procedures to ensure and confirm
certain assertions such as completeness and accuracy as well as the presentation
and disclosure of such depreciation charges of the PPE.
Below are the audit procedures that audit may carries out to ensure this assertions.
 The auditor should review the depreciation schedule, the reasonableness of
depreciation rate and the calculations. In addition, make sure that the company
accounts for depreciation for all assets.
 Auditors may perform analytical audit procedures for like trend analysis and
ratio analysis to judge the reasonableness of depreciation expense of property,
plant and equipment. This is done by comparing the depreciation of current
year to previous years.
 Review the depreciation rate used by the entity being audited and perform the
recalculation to ensure that the entity calculated the depreciation expenses
correctly.
 If the entity adopted the revaluation model, auditor shall ensure that the entity
calculate the deprecation on such revalue amount of the assets.
 The auditor shall obtain the accounting policy in relation to the depreciation
and ensure that the deprecation is in line with such policy. In addition, this
shall be properly disclose in the financial statements.
Rights and Obligations
Under this section, the auditor perform the audit procedures to ensure and
confirm rights and obligations of the PPE.
Below are the audit procedures that audit may carries out to ensure this assertions.
 They should carefully examine lease agreements on property, plant and
equipment to determine whether relevant accounting standards has been
followed.
 For land and building, auditor shall need to verify the ownership by inspecting
the tittle deeds, the certificate of the registration of land as well as the lease
agreement if such assets were leased from third parties.
 For vehicles, auditor shall obtain the registration documents. Then perform the
inspection to ensure that the name of the entity being audited shown in the
registration documents.
 Confirm with management if such vehicles are solely used for the purpose of
the business of the entity.
 For other assets, auditor shall examine the documents the proof the ownership
of such assets by inspecting the purchase invoices and other relevant
supporting documents.
Additions
Under this section, the auditor perform the audit procedures to ensure and confirm
certain assertions such as rights and obligations, valuation, and completeness.
Below are the audit procedures that audit may carries out to test the additions of PPE.
 The auditor should obtain a list of PPE additions during the year which
reconciles with the total additions in the financial statements.
 They should review the nature of PPE items from the list of additions and for
a sample of additions perform vouching to confirm the ownership and
authorization of those additions.
 They should review the acquisition of fixed assets and check all necessary costs
are capitalized as per PAS 16.
 For the capitalization of expenditures, auditor shall obtain relevant supporting
documents and review to ensure that those expenses have been capitalized
correctly.
Self-Constructed Assets
Under this section, the auditor perform the audit procedures to ensure and confirm
certain assertions such as valuation and completeness.
Below are the audit procedures that audit may carries out to test the self-constructed
assets of PPE.
 Auditors shall obtain all relevant costs associated with the self-constructed
assets such as direct materials, direct labors as well as other overheads. Then,
they shall verify to the relevant invoices to ensure that those costs are correct.
 For any expenditures that the entity capitalized as self-constructed assets,
auditor shall review and ensure as follow:
 Such expenditures help to enhance the economic benefit of the assets
 Those expenditures incurred to replace or restore a portion components of
assets being self-constructed.
 Those expenditures play a major part of the overhaul in order to restore
the assets’ future economic benefits.
 Auditor shall ensure that there is on any expenditures associated with the profit
elements included in the capitalization.
 In addition, where applicable, the borrowing costs related to the self-
constructed assets shall be determined. For the accounting for the borrowing
costs, please refer to another article on “Accounting for Borrowing Costs:
Overview and Example”.
Disposals
Under this section, the auditor perform the audit procedures to ensure and confirm
certain assertions such as completeness, occurrence, rights and obligations as
well as accuracy.
Below are the audit procedures that audit may carries out to test the disposals of PPE.
 The auditor should investigate retirement of property, plant and equipment to
determine whether any property has been sold, replaced and abandoned
without proper reflection in the accounting records. If the assets were sold,
auditor shall assess the reasonableness of the sales proceed. The profit on the
disposal should also be recalculated to ensure
thee completeness and accuracy of gain or loss recorded in the profit and
loss statement.
 They should ensure de-recognition of assets in the financial statements that
had been disposed of and written off.
Presentation and Disclosure
Under this section, the auditor perform the audit procedures to ensure and confirm
certain assertions such as presentation and disclosure including the
classification and understandability.
Below are the audit procedures that audit may carries out for these assertions.
 They should analyze the repair and maintenance accounts to ensure proper
expense has been charged and the classification of those costs is correct. They
should check the authorization of transactions from the general ledger.
 They should check the presentation and disclosure for property, plant and
equipment in the financial statement. The notes should disclose balances of
assets, their classes, accumulated depreciation, base of valuation etc.
-End of Discussion-
Chapter 3:
AUDIT OF SHAREHOLDERS’ EQUITY
Chapter Objectives:
This chapter should enable you to know and understand:
 The audit program for shareholders’ equity.
 The audit objectives and procedures to be done.
Stockholders’ Equity Issues in Auditing
Stockholders’ equity represents the claim that the corporation’s shareholders have to
the company’s net assets. As an auditor you have to account for net assets.
Stockholders’ equity has three common components: paid-in capital, treasury stock,
and retained earnings.
Three types of business entities exist: corporations, sole proprietorships, and
flow-through entities such as partnerships. Stockholders’ equity applies only to
the corporate business entity. The comparable partnership account is
called partners’ equity. For sole proprietorships, the account is called owners’
equity. The majority of clients you’ll be assigned as a new auditor will be
corporations, the following applies to that type of business.
 Paid-in capital: Paid-in capital represents money that shareholders invest in a
business. There are some subcategories:
 Common and preferred stock:
 Common and preferred stock show ownership in a corporation. What’s the
difference between the two? As the names imply, preferred stock represents a
higher rung on the ownership ladder than common stock. Common stock
represents residual ownership, which means that owners of common stock
have a claim on any remaining net assets only after preferred stockholders’
claims are paid. Because of this characteristic of common stock, preferred stock
shows traits of both debt and equity.
 Consider an example: Say that the shareholders of a fictional company (FPD)
decide to close the business. All corporate assets are sold, and the proceeds
are used to pay all remaining bills. After all the creditors are paid, the preferred
stockholders get back the money they’ve invested in the company, plus any
cash dividends owed to them. Any funds left over are then distributed to the
common stockholders.
 If it seems like common stockholders are treated like mud, take heart: Common
stockholders have voting rights, which preferred stockholders usually don’t
have. That means common stockholders are the ones who vote in members of
the board of directors and who vote to approve changes to the corporate
charter.
 Additional paid-in capital: Additional paid-in capital is the excess of what
shareholders pay to buy stock over the stock’s par value. Par value is what’s
printed on the face of the stock certificate. Additional paid-in capital is shown
on the balance sheet as a component of owner’s equity.
 Treasury stock:
Treasury stock must be recorded on the balance sheet as a contra stockholders’
equity account. Contra accounts carry a balance opposite to the normal balance.
Because equity accounts normally have a credit balance, a contra equity account
has a debit balance.
It’s not appropriate to record any sort of gain or loss on treasury stock
transactions. Per generally accepted accounting principles (GAAP), this is a
balance sheet transaction that affects stockholders’ equity and cash.
 Retained earnings:
Retained earnings show a company’s total net income or loss from the first day it’s
in business to the date on the balance sheet you’re auditing.
Items other than net income or loss can affect retained earnings. Paying
dividends and correcting prior period errors are two of the most common
events that increase or decrease retained earnings.
-End of Discussion-
SELF-CHECK TEST:
Issuance of Ordinary Share Capital
The Epal Company is authorized to issue 600,000 shares of P10 par value ordinary
share capital. Epal’s accounting year ends on December 31. The following transactions
occurred in 2021, the company’s first year of operation:
a) Issued 20,000 shares at P20 per share, received cash.
b) Issued 2,500 shares to attorneys for services in securing the corporate charter and
for preliminary legal costs of organizing the corporation. The value of the services
was P85,000.
c) Issued 300 shares, valued objectively at P15,000, to the employees instead of
paying them cash wages.
d) Issued 325,000 shares in exchange for a building valued at P3,000,000 and land
valued at P4,000,000. (The building was originally acquired by the investor for
P2,500,000 and has P1,000,000 of accumulated depreciation; the land was
originally acquired for P1,500,000).
Required:
1. Ordinary share capital on December 31, 2021
2. Share premium on December 31, 2021
3. Organization expense to be charge against Epal’s income for 2021
Share Premium
The following are Kistan Company’s equity accounts at December 31, 2021:
Ordinary share capital, par value P10;
authorized 200,000 shares; issued and
outstanding 120,000 shares P1,200,000
Share Premium 13,000
Retained Earnings (12,000)
Kistan Comapany uses the cost method of accounting for treasury shares.
The following transactions occurred in 2022:
 a. Acquired 8,000 ordinary shares for P144,000.  Treasury shares
b. Sold P6,500 treasury shares at P20 per share.  Ordinary shares
c. Retired the remaining treasury shares.  Share premium-issuance
 Share premium- treasury shares
What is the share premium balance on December 31, 2022?  Retained earnings (before appropriation for treasury shares)

Treasury Shares
The shareholder’s equity of the Man Company as of December 31, 2021 was as
follows: REFERENCES/LEARNING RESOURCES:
1. Applied Auditing
Ordinary shares, P10 par; authorized 300,000 2017 Edition
shares; 250,000 shares issued and outstanding P2,500,000 Cabrera, Ma. Elenita
Share Premium - issuance 3,500,000
Retained Earnings 1,740,000 2. AUDITING PROBLEMS
2018 Edition
On June 1, 2022, Man reacquired 40,000 ordinary shares at P40. The following By: Gerardo S. Roque
transactions occurred in 2022 with regard to these shares.

July 1 Sold 15,000 shares at P48.

Aug 1 Sold P19,000 shares at P27.
Sept 1 Retired 1,000 shares.

The following entries were made by the company’s accountant to record the
preceding transactions.

2022

June 1 Treasury shares 1,600,000

Cash 1,600,000
July 1 Cash 720,000
Treasury shares 720,000
Aug 1 Cash 513,000
Treasury shares 513,000
Sept 1 Ordinary shares 10,000
Treasury shares 10,000

Man’s net income for 2022 was P135,000.

Required:

Determine the correct balances of the following accounts: