CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
AUDITING
AUD-90PW
Batch 90
Situation 4 – YES CAN DOSVILLE CORPORATION
Yes Can Dosville Corporation’s accounting records included the following investments:
Investment in Ordinary Shares
01/01/2019 P950,000 07/01/2021 P550,000
12/31/2019
250,000
12/31/2020
300,000
Investment in Bonds
01/01/2021 P1,051,510
During the course of your audit, you noted the following.
Investment in Ordinary Shares
• The investment is designated at FVTOCI.
• Acquired on January 1, 2019 at P950,000 plus transaction costs of P50,000.
• On July 1, 2021, the entity sold one-third of the investment for its fair value of P550,000.
• Fair value of the investment: December 31, 2019, P1,200,000; December 31, 2020,
P1,500,000; December 31, 2021, P1,200,000.
Investment in Bonds
• The entity uses the ‘held for collection’ business model for acquired and originated debt
instruments.
• P1,000,000, 10% bonds, purchased for P1,066,210 including transaction costs of P20,000.
Interest is payable annually every December 31. The bonds mature on December 31,
2024. The effective interest rate is 8%.
• The prevailing market rate for the bonds is 9% at December 31, 2021.
Based on the above and the result of your audit, answer the following:
1. The carrying amount of Investment in Ordinary Shares as of December 31, 2021 is misstated
by
A. P250,000 under
B. P250,000 over
C. P150,000 under
D. P150,000 over
2. The carrying amount of Investment in Bonds as of December 31, 2021 is overstated by
A. Nil
B. P14,700
C. P15,880
D. P18,020
3. The net amount to be recognized in 2021 profit or loss related to these investments is
A. P285,297
B. P284,121
C. P135,297
D. P85,297
4. If the investment in bonds is FVTOCI, the carrying amount as of December 31, 2021 is
overstated by
A. P18,020
B. P33,900
C. P38,020
D. P40,880
5. If both the investment in ordinary shares and investment in bonds are FVTPL, the net
amount to be recognized in 2021 profit or loss related to these investments is
A. P329,120
B. P314,417
C. P309,120
D. P294,417
Page 1 of 7 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA
AUDITING
PREWEEK LECTURE
Batch 90
Situation 5 – GANDERS COMPANY
The following data was extracted during the financial statement preparation of Ganders
Company. Ganders’ accountant, Ms. Buys, is unsure how to classify the following items in the
statement of financial position due to Ganders’ diverse activities:
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
Item
Factory which due to a decline in activity is no longer required and is
now being held for sale in accordance with PFRS 5
Farming land was purchased for its investment potential. Planning
permission has not been obtained for building constructions of any
kind.
A factory is in the process of being constructed on behalf of the
government.
A building being constructed on behalf of Shongit Company
A new office building used by one of its subsidiaries as its head office
which was purchased specifically in the center of Makati City in order
to exploit its capital gains potential
A property that is in the process of construction for sale
A property intended for sale in the ordinary course of business
Owner-occupied properties
Buildings occupied by employees including Ms. Buys – the accountant.
The employees pay rent on the building they occupy.
A building occupied by employees. The employees do not pay market
rent on the building they occupy.
A building that is leased to a third party under a finance lease
A building that is held under mixed use. Half of it is owner-occupied
and the other half is to earn rentals.
A property wherein significant ancillary services are provided to
occupants
Land and building leased to a subsidiary
A building leased to an associate under an operating lease
A new machine leased to another associate under an operating lease
A machine that is leased by the company under operating lease
A building that is being constructed for future use as administration
building
Amount
P 500,000
800,000
1,260,000
1,000,000
1,200,000
950,000
500,000
1,600,000
760,000
240,000
1,110,000
1,920,000
960,000
2,100,000
1,620,000
530,000
420,000
870,000
Based on the above and the result of your audit, determine the amounts to be reported in the
consolidated financial statements of Ganders Company and its subsidiaries:
1. Investment property
A. P4,340,000
B. P4,140,000
C. P3,380,000
D. P3,280,000
2. Property plant and equipment
A. P10,180,000
B. P9,980,000
C. P9,220,000
D. P9,120,000
3. Inventories
A. P1,450,000
C. P1,400,000
D. P500,000
B. P950,000
4. Investment property is initially measured at cost, including transaction costs, which include
A. Start-up costs
B. Abnormal waste
C. Property transfer taxes
D. Initial operating losses
5. Investment property excludes
A. Land held for long term capital appreciation
B. Building leased out under an operating lease
C. Property held for future use as owner occupied property
D. Property under construction to be used as investment property
Page 2 of 7 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA
AUDITING
PREWEEK LECTURE
Batch 90
Situation 6 – EXCITED CORPORATION
On December 31, 2020, Excited Corporation acquired the following three intangible assets:
• A trademark for P300,000. The trademark has 7 years remaining legal life. It is anticipated
that the trademark will be renewed in the future, indefinitely, without problem.
• Goodwill for P1,500,000. The goodwill is associated with Excited’s Good Luck Manufacturing
reporting unit.
• A customer list for P220,000. By contract, Excited has exclusive use of the list for 5 years.
Because of market conditions, it is expected that the list will have economic value for just 3
years.
On December 31, 2021, before any adjusting entries for the year were made, the following
information was assembled about each of the intangible assets:
a) Because of a decline in the economy, the trademark is now expected to generate cash flows
of just P10,000 per year. The useful life of trademark still extends beyond the foreseeable
horizon.
b) The cash flows expected to be generated by the Good Luck Manufacturing reporting unit is
P250,000 per year for the next 22 years. Book values and fair values of the assets and
liabilities of the Good Luck Manufacturing reporting unit are as follows:
Identifiable assets
Goodwill
Liabilities
Book values
P2,700,000
1,500,000
1,800,000
Fair values
P3,000,000
?
1,800,000
c) The cash flows expected to be generated by the customer list are P120,000 in 2022 and
P80,000 in 2023.
Assume that the appropriate discount rate for all items is 6%.
Based on the above and the result of your audit, determine the following:
1. Total amortization for the year 2021
A. P73,333
B. P141,515
C. P116,190
D. P86,857
2. Impairment loss for the year 2021
A. P90,476
B. P133,333
C. P179,584
D. P0
3. Carrying value of Trademark as of December 31, 2021
A. P300,000
B. P257,143
C. P166,667
D. P120,416
4. Carrying value of Goodwill as of December 31, 2021
A. P1,500,000
B. P1,431,818
C. P1,425,000
D. P1,462,500
5. Carrying value of Customer List as of December 31, 2021
A. P220,000
B. P146,667
C. P176,000
D. P0
Page 3 of 7 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA
AUDITING
PREWEEK LECTURE
Batch 90
Situation 7 – JARED CO.
You obtain the following information pertaining to Jared Co.’s property, plant, and equipment
for 2021 in connection with your audit of the company’s financial statements.
Audited balances at December 31, 2020:
Land
Buildings
Accumulated depreciation – Buildings
Machinery and equipment
Accumulated depreciation – Machinery and Equipment
Delivery Equipment
Accumulated Depreciation – Delivery Equipment
Depreciation data:
Buildings
Machinery and Equipment
Delivery Equipment
Leasehold Improvements
Depreciation Method
150% declining balance
Straight-line
Sum-of-the-years’-digits
Straight-line
Debit
P 3,750,000
30,000,000
22,500,000
2,875,000
Credit
P 6,577,500
6,250,000
2,115,000
Useful Life
25 years
10 years
4 years
-
Transaction during 2021 and other information are as follows:
a. On January 2, 2021, Jared purchased a new truck for P500,000 cash and traded-in a 2-yearold truck with a cost of P450,000 and a book value of P135,000. The new truck has a cash
price of P600,000; the market value of the old truck is not known.
b. On April 1, 2021, a machine purchased for P575,000 on April 1, 2016 was destroyed by fire.
Jared recovered P387,500 from its insurance company.
c. On May 1, 2021, cost of P4,200,000 were incurred to improve leased office premises. The
leasehold improvements have a useful life of 8 years. The related lease terminates on
December 31, 2027.
d. On July 1, 2021, machinery and equipment were purchased at a total invoice cost of
P7,000,000; additional cost of P125,000 for freight and P625,000 for installation were
incurred.
e. Jared determined that the delivery equipment comprising the P2,875,000 balance at January
1, 2021, would have been depreciated at a total amount of P450,000 for the year ended
December 31, 2021.
The salvage values of the depreciable assets are immaterial. The policy of the Jared Co. is to
compute depreciation to the nearest month.
Based on the above and the result of your audit, answer the following:
1. How much is the Accumulated depreciation – Buildings as of December 31, 2021?
A. P7,777,500
B. P7,982,850
C. P8,377,500
D. P7,103,700
2. How much is the Accumulated depreciation – Machinery and Equipment as of December 31,
2021?
A. P8,844,375
B. P8,614,375
C. P8,830,000
D. P8,556,875
3. How much is the Accumulated depreciation – Delivery Equipment as of December 31, 2021?
A. P2,715,000
B. P2,400,000
C. P2,490,000
D. P2,805,000
4. How much is the Accumulated depreciation – Leasehold Improvements as of December 31,
2021?
A. P420,000
B. P525,000
C. P350,000
D. P630,000
5. How much is the net gain (loss) from disposal of assets for the year ended December 31,
2021?
A. P100,000
B. (P35,000)
C. P65,000
D. (P65,000)
Page 4 of 7 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA
AUDITING
PREWEEK LECTURE
Batch 90
Situation 8 – GREENER PASTURE CORPORATION
In 2016, Greener Pasture Corporation acquired a silver mine in Benguet. Because the mine is
located deep in the Benguet mountains, Greener Pasture was able to acquire the mine for the
low price of P50,000.
In 2017, Greener Pasture constructed a road to the silver mine costing P5,000,000.
Improvements to the mine made in 2017 cost P750,000. Because of the improvements to the
mine and the surrounding land, it is estimated that the mine can be sold for P600,000 when the
mining activities are complete.
During 2018, five buildings were constructed near the mine site to house the mine workers and
their families. The total cost of the five buildings was P1,500,000. Estimated residual value is
P250,000. In 2016, geologists estimated 4 million tons of silver ore could be removed from the
mine for refining.
During 2019, the first year of operations, only 5,000 tons of silver ore were removed from the
mine. However, in 2020, workers mined 1 million tons of silver. During that same year, geologists
discovered that the mine contained 3 million tons of silver ore in addition to the original 4 million
tons. Improvements of P275,000 were made to the mine early in 2020 to facilitate the removal
of the additional silver.
Early in 2020, an additional building was constructed at a cost of P225,000 to house the additional
workers needed to excavate the added silver. This building is not expected to have any residual
value.
In 2021, 2.5 million tons of silver were mined and costs of P1,100,000 were incurred at the
beginning of the year for improvements to the mine.
Based on the above and the result of your audit, determine the following: (Round off depletion
and depreciation rates to two decimal places.)
1. Depletion for 2019
A. P6,300
B. P6,500
C. P7,250
D. P5,550
2. Depletion for 2020
A. P1,300,000
B. P1,820,000
C. P780,000
D. P870,000
3. Depreciation for 2020
A. P250,000
B. P490,000
C. P180,000
D. P210,000
4. Depletion for 2021
A. P1,950,000
B. P2,150,000
C. P2,425,000
D. P2,275,000
5. Depreciation for 2021
A. P525,000
B. P625,000
C. P1,225,000
D. P450,000
Page 5 of 7 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA
AUDITING
PREWEEK LECTURE
Batch 90
Situation 9 – LABAN CORPORATION
You were able to obtain the following from the accountant for Laban Corporation related to the
company’s liabilities as of December 31, 2021.
Accounts payable
Notes payable – trade
Notes payable – bank
Wages and salaries payable
Interest payable
Mortgage notes payable – 10%
Mortgage notes payable – 12%
Bonds payable
P 650,000
190,000
800,000
15,000
?
600,000
1,500,000
2,000,000
The following additional information pertains to these liabilities:
a. All trade notes payable are due within six months of the balance sheet date.
b. Bank notes payable include two separate notes payable to Alay Bank.
(1) A P300,000, 8% note issued March 1, 2019, payable on demand. Interest is payable
every six months.
(2) A 1-year, P500,000, 11 ½% note issued January 2, 2021. On December 30, 2021,
Laban negotiated a written agreement with Alay Bank to replace the note with a 2-year,
P500,000, 10% note to be issued January 2, 2022. The interest was paid on December
31, 2021.
c. The 10% mortgage note was issued October 1, 2018, with a term of 10 years. Terms of the
note give the holder the right to demand immediate payment if the company fails to make a
monthly interest payment within 10 days from the date the payment is due. As of December
31, 2021, Laban is three months behind in paying its required interest payment.
d. The 12% mortgage note was issued May 1, 2015, with a term of 20 years. The current
principal amount due is P1,500,000. Principal and interest payable annually on April 30. A
payment of P220,000 is due April 30, 2022. The payment includes interest of P180,000.
e. The bonds payable is 10-year, 8% bonds, issued June 30, 2012. Interest is payable semiannually every June 30 and December 31.
Based on the above and the result of your audit, answer the following:
1. Interest payable as of December 31, 2021 is
A. P155,000
B. P143,000
C. P203,000
D. P215,000
2. The portion of the Note Payable-bank to be reported under current liabilities as of December
31, 2021 is
A. P300,000
B. P500,000
C. P800,000
D. P0
3. Total current liabilities as of December 31, 2021 is
A. P3,950,000
B. P4,138,000
C. P3,938,000
D. P3,998,000
4. Total noncurrent liabilities as of December 31, 2021 is
A. P1,760,000
B. P2,560,000
C. P3,960,000
D. P1,960,000
5. Which of the following is correct regarding the classification of financial liabilities?
A. An entity classifies financial liabilities as noncurrent when they are due to be settled
within 12 months after the balance sheet date.
B. If the entity expects, and has the discretion, to refinance or roll over an obligation for
at least 12 months after the balance sheet date under an existing loan facility, it classifies
obligation as current.
C. When refinancing or rolling over is not at the discretion of the entity, the potential to
refinance is not considered and the obligation is classified as current.
D. When an entity breaches an undertaking under a long-term loan agreement on or before
the SFP date with the effect that the liability becomes payable on demand, the liability
is classified as non-current, if, after the SFP date, and before the FS are authorized for
issue, the lender has agreed not to demand payment as a consequence of the breach.
Page 6 of 7 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA
AUDITING
PREWEEK LECTURE
Batch 90
Situation 10 – SUCCESS COMPANY
Shown below is the contributed capital section of the December 31, 2020, Statement of Financial
Position of Success Company, your audit client.
Preference share capital (6%, P50 par, 24,000 shares authorized,
10,200 shares issued and outstanding)
Ordinary share capital (P10 stated value, 90,000 shares authorized,
36,000 shares issued and outstanding)
Preference shares subscribed (2,400 shares subscribed at P54 per share)
Share premium – preference shares
Share premium – ordinary shares
Total contributed capital
P 510,000
360,000
120,000
38,400
216,000
P1,244,400
The following equity-related transactions occurred during 2021:
Jan. 3
Mar. 6
Apr. 24
May 5
June 6
July 3
Sep. 22
Oct. 13
Nov. 14
Dec. 15
28
Granted a compensatory share option plan for its key executives. The options vest
after a 3-year service period. The estimated fair value of the options expected to be
exercised is P243,000.
Received the remaining P40 per share on the subscribed preference shares and issued
the shares.
Sold 900 preference shares at P55 per share.
Received a subscription down payment of P6 per share on 3,000 ordinary shares. The
remaining P11 per share balance is due in 60 days.
Sold 1,800 ordinary shares at P17 per share.
Received the remaining balance on subscribed ordinary shares and issued the shares.
Purchased an equipment by paying P27,000 and issuing 2,400 ordinary shares and
1,350 preference shares. Ordinary and preference shares are currently selling for P19
and P57 per share, respectively.
Reacquired 2,700 ordinary shares at P19.50 per share. The company uses the cost
method to account for treasury shares.
Issued for P96,000 a combination of 2,100 ordinary shares and 12% bonds with a
face value of P60,000. The ordinary share is currently selling for P18 per share. No
market value exists for the bonds.
Reissued the 2,700 treasury shares at P20.50 per share.
Distributed a P3 per share dividend to all outstanding preference shares and a P1.50
per share dividend to all ordinary shares outstanding on this date (debit Retained
earnings and credit cash for each dividend).
Based on the preceding information, determine the following:
1. Preference share capital
A. P742,500
B. P622,500
C. P751,950
D. P718,500
2. Ordinary share capital
A. P474,600
B. P453,000
C. P450,000
D. P505,650
3. Share premium – preference
A. P52,350
B. P55,050
C. P42,900
D. P64,950
4. Share premium – treasury
A. P52,650
B. P55,350
C. P2,700
D. P0
5. Total contributed capital
A. P1,619,550
B. P1,616,850
C. P1,538,550
D. P1,739,550
--- END ---
Page 7 of 7 Pages