2023.AUD.A.

03

PROBLEM 1
During your audit of the BLOOM Corporation for the year ended December 31, 2023, you found the
following information relating to certain inventory transactions from your observation of the client’s
physical count and review of sales and purchases cutoff:
a. Goods costing P180,000 were received from a vendor on January 3, 2024. The goods were not
included in the physical count. The related invoice was received and recorded on December 30, 2023.
The goods were shipped on December 31, 2023, terms FOB shipping point.
b. Goods costing P200,000 sold for P300,000, were shipped on December 31, 2023, and were received
by the customer on January 2, 2024. The terms of the invoice were FOB shipping point. The goods were
included in the ending inventory for 2023 and the sale was recorded in 2024.
c. The invoice for goods costing P150,000 was received and recorded as a purchase on December 31,
2023. The related goods, shipped FOB destination were received on January 2, 2024, but were included
in the physical inventory as goods in transit.
d. A P600,000 shipment of goods to a customer on December 30, 2023, terms FOB Destination, was
recorded as a sale upon shipment. The goods, costing P400,000 and delivered to the customer on January
6, 2024, were not included in the 2023 ending inventory.
e. Goods valued at P250,000 are on consignment from a vendor. These goods are included in the physical
inventory.
f. Goods valued at P160,000 are on consignment with a customer. These goods are not included in the
physical inventory.

QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. The inventory as of December 31, 2023 is misstated by (over/under)
2. The cost of sales for the year ended December 31, 2023 is misstated by (over/under)
3. The profit for the year ended December 31, 2023 is misstated by (over/under)
4. The Current Assets as of December 31, 2023 is misstated by (over/under)
5. The Current Liabilities as of December 31, 2023 is misstated by (over/under)

PROBLEM 2
On April 21, 2023, a fire damaged the office and warehouse of ENEX Company. The only accounting
record saved was the general ledger, from which the trial balance as of March 31, 2023 below was
prepared.

DEBIT CREDIT

Cash P 180,000
Accounts Receivable 400,000
Inventory, Dec. 31 750,000
Land 350,000
Building 1,100,000
Accum. Depreciation P 413,000
Other Assets 56,000
Accounts Payable 237,000
Accrued Expenses 180,000
Share Capital, P100 par 1,000,000
Retained Earnings 520,000
Sales 1,350,000
Purchases 520,000
Operating Expenses 344,000
Totals P3,700,000 P3,700,000

The following data and information have been gathered:

a. The company’s year-end is December 31.
b. An examination of the April bank statement and cancelled checks revealed that checks written during
the period April 1 to 21 totaled P130,000: P57,000 paid to accounts payable as of March 31, P34,000 for
April merchandise purchases, and P39,000 paid for other expenses. Deposits during the same period
amounted to P129,500, which consisted of receipts on account from customers with the exception of a
P9,500 refund from a vendor for merchandise returned in April.
c. Correspondence with suppliers revealed unrecorded obligations at April 21 of P106,000 for April
merchandise purchases, including P23,000 for shipments in transit on that date.
d. Customers acknowledged indebtness of P360,000 at April 21, 2023. It was also estimated that
customers owed another P80,000 that will never be acknowledged or recovered. Of the acknowledged
indebtedness, P6,000 will probably be uncollectible.
e. The insurance company agreed that the fire loss claim should be based on the assumption that the
overall gross profit ratio for the past two years was in effect during the current year. The company’s
audited financial statements disclosed the following information:

2022 2021

Net Sales P 5,300,000 P 3,900,000

Net Purchases 2,400,000 2,350,000
Beginning Inventory 500,000 600,000
Ending Inventory 750,000 500,000

f. Inventory with a cost of P70,000 was salvaged and sold for P35,000. The balance of the inventory was
a total loss.
QUESTIONS:
Based on the above and the result of your audit, answer the following:
1. How much is the net realizable value of Accounts Receivable as of April 21, 2023?
2. How much is the sales for the period January 1 to April 21, 2023?
3. How much is the adjusted balance of Accounts Payable as of April 21, 2023?
4. How much is the net purchases for the period January 1 to April 21, 2023?
5. How much is the cost of sales for the period January 1 to April 21, 2023?
6. How much is the estimated inventory on April 21, 2023?
7. How much is the estimated inventory fire loss?