NFJPIA-Region X and CARAGA Council
RFJPIA Cup Level 5 – Auditing Problems
ELIMINATION RON!
EA"# RON!
RFJPIA CP LE$EL 5 – Auditing Problems %EA"# &E"TION '()
You were engaged to examine the accounts of Power Pla Inc! as of "ecem#er $%& '(%(! Your audit
disclosed that the cash counted on "ecem#er $%& '(%( included two customers) chec*s amounting to P+&((( #oth
dated in Januar '(%%!
'(%%! ,hese chec*s were recor
recorded
ded in the #oo*s in "ecem#er and were acceted for deosit
deosit #
the #an* on due dates! ,he ad.usting entr is/
Ans*er+
!r, A--ounts Re-eiv.ble
5/000
Cr, C.s1
5/000
RFJPIA CP LE$EL 5 – Auditing Problems %EA"# &E"TION '2)
As an auditor& ou were as*ed # our client to examine its accounts as of "ecem#er $%& '(%(! Your audit
disclosed that chec*s with a total of P%(&((( as ament to suliers were reared and ta*en u as de#its to
accounts aa#le!
aa#le! 0ne of these chec*s in the amount of P'&((( was cancelled on Januar +& '(%
'(%%% and relaced
with another for the correct amount
amoun t of P'&+((! No entr was made for the cancellation!
cancellatio n! ,he ad.usting entr is/
Ans*er+ None, No ad.ustment is necessar!
RFJPIA CP LE$EL 5 – Auditing Problems %EA"# &E"TION '3)
Your audit of 1uer Clu# Co! for the ear ended "ecem#er $%& '(%( disclosed that customers) chec*s
amounting
amounti
ng to P2&+(( were returned during "ecem#er
"ecem#er '(%( # the #an* with the notation 3N1F4!
3N1F4! 0f these chec*s
P$&((( had #een redeosited
redeosited and cleared
cleared # the #an* during the month! No entries were made
made for the return or
redeosit! ,he ad.usting entr is/
Ans*er+
!r, A--ounts Re-eiv.ble
Cr, C.s1
(/500
(/500
RFJPIA CP LE$EL 5 – Auditing Problems %EA"# &E"TION '4)
You were engaged to audit the records of Generation& Inc! as of "ecem#er $%& '(%(! Your audit shows that
goods costing P'(&(((
P'(&((( were excluded from the ending in5entor
in5entor!! ,he selling rice of these goods was P$(&(((!
,he goods were shied
shied # our client on "ecem#er '6& '(%
'(%(&
(& F07 shiing oi
oint!
nt! ,he transaction
transaction was not
recorded in '(%(! ,he ad.usting entr is/
Ans*er+
!r, A--ounts Re-eiv.ble
30/000
Cr, ".les
30/000
RFJPIA CP LE$EL 5 – Auditing Problems %EA"# &E"TION '5)
Your audit of our client as of "ecem#er $%& '(%( disclosed that merchandise costing P%+&((( were still
included in ending in5entor although these were alread in5oiced and recorded as sales to customers on
"ecem#err $%! ,he sales in5oices totaling
"ecem#e
totaling P'+&((( were no longer recorde
recordedd when the goods were deli5ered on
Januar +& '(%%! ,he ad.usting entr is/
Ans*er+
!r, Cost o ".les
(5/000
Cr, Inventor6
(5/000
A$ERA7E RON!
RFJPIA CP LE$EL 5 – Auditing Problems %A$ERA7E &E"TION '()
Just In 8o5e Cor! decided that the allowance for #ad de#ts should #e ad.usted to e9ual the estimated
amount re9uired #ased on aging the accounts as of "ecem#er $%! Following data were gathered/
Allowance for #ad de#ts& Januar %& '(%(
P%'(&(((
Pro5ision for #ad de#ts during '(%( at ':
;(&(((
of P$&(((&((( sales
7ad de#ts written off in '(%(
<+&(((
=stimated #ad de#ts er aging of accounts on
>(&(((
"ecem#er $%& '(%(
?hat entr is necessar to ad.ust the #ad de#ts ro5ision@
Ans*er+
!r, Allo*.n-e or 8.d !ebts
Cr, 8.d !ebts E9pense
25/000
25/000
RFJPIA CP LE$EL 5 – Auditing Problems %A$ERA7E &E"TION '2)
You comleted our filed wor* for '(%( on Aril %(& '(%
'(%%!
%! 7efore issuance of our audit reort on Aril '+&
'(%%& ou were ad5ised that on Aril %+& '(%% a large recei5a#le from a customer who is facing #an*rutc was
written off as uncollecti#le! ?hat should ou do a#out this fact@
a! "isclos
"isclosee the
the loss
loss in
in the
the '(%(
'(%( statem
statement
ents!
s!
#! Ad:ust t1e 20(0 in.n-i.l st.tements,
c! "a
"ate
te our
our reo
reort
rt Ari
Arill %(& '(%
'(%%!
%!
d! ,a*e u
u the loss
loss in
in the '(%
'(%%% statem
statements
ents!!
e! "o no
nothing!
RFJPIA CP LE$EL 5 – Auditing Problems %A$ERA7E &E"TION '3)
,he closing
closing in5entor
in5entor of Gandhi
Gandhi Coman
Coman amounted
amounted to P'>2&(
P'>2&(((
(( at "ecem#
"ecem#er
er $%& '(%(!
'(%(! ,his
,his tot
total
al
includes two in5entor lines a#out which the in5entor ta*er is uncertain!
+(( items which had cost P%+ each and which were
were included at P<&+((! ,hese items were
were found to
ha5e #een defecti5e
defecti5e at the #alance sheet date! Remedial
Remedial wor* after the #alance sheet
sheet date cost
P%&>(( and the were then sold for
for P'( each! 1elling exenses were P2((!
%(( items that had cost P%( each #ut after the #alance sheet date& these were sold for P> each with
selling exenses of P%+(!
?hat figure should aear in Gandhi)s #alance sheet for in5entor@
Ans*er+ P2;3/<50,


RFJPIA CP LE$EL 5 – Auditing Problems %A$ERA7E &E"TION '4)
Ca5aliers
a one-ear
warrant
on outstanding
some selected
warrant
on
sales made
duringhas
the '((6
 '(%(roduct
fiscal ear
and still
as ofitems!
Barch,he
$%&estimated
'(%(& amounted
to lia#ilit
P'+'&(((!
,he warrant costs on sales made from Aril %& '(%( to Barch $%& '(%%& are estimated at P;$(&(((! ,he actual
warrant costs incurred during '(%(  '(%% fiscal ear are as follows/
?arrant claims honored on '((6  '(%( sales
P'+'&(((
?arrant claims honored on '(%(  '(%%
'(%% sales
'>+&(((
,otal
P+$<&(((
7eing Ca5aliers) auditor& determine the ad.usted #alances of the estimated warrant aa#le as of Barch
$%& '(%%!
Ans*er+ P345/000,
RFJPIA CP LE$EL 5 – Auditing Problems %A$ERA7E &E"TION '5)
0n Januar %& '(%(& Rostrum Coman urchased de#t securities with a face 5alue of P+((&(((! ,he
securities mature in < ears and are to #e classified as a held to maturit in5estment! ,he securities ha5e a stated
interest rate of >: and interest is aid semiannuall& on Januar % and Jul %! ,he re5ailing mar*et interest rate on
these de#t securities is %': comounded semiannuall! ,he following resent 5alue factors are ta*en from the
resent 5alue ta#les/
Present v.lue o (
%': for < eriods
(!2+'$+
;: for %2 eriods
(!22'$(
>: for < eriods
(!+>$26
2: for %2 eriods
(!+<<2>
Present v.lue o .n ordin.r6 .nnuit6 o (
%': for < eriods
2!+;$<;
;: for %2 eriods
6!'626>
>: for < eriods
+!'(;$<
2: for %2 eriods
%(!+;$%'
"etermine the fair 5alue of the de#t securities on Januar %& '(%(!
Ans*er+ P40=/050,
!IFFICLT RON!
RFJPIA CP LE$EL 5 – Auditing Problems %!IFFICLT &E"TION '()
?hich of the following su#se9uent e5ents will #e least li*el to result in an ad.ustment to the financial
statements@
a! Culmin
Culminati
ation
on of e5ents
e5ents affecti
affecting
ng the realiat
realiation
ion of accounts
accounts recei5a#l
recei5a#lee owned as of the end of the
eriod!
#! Culmination
Culmination of e5ents
e5ents affectin
affectingg the realiation
realiation of
of in5entories
in5entories owned
owned as of the
the end of the
the eriod!
c! Baterial
Baterial changes in the settlemen
settlementt of lia#ilities
lia#ilities which were
were estimated
estimated as of the
the end of the
the eriod!
eriod!
d, M.teri.l
M.teri.l -1.nges in
in t1e >uoted
>uoted m.r?et
m.r?et pri-es o
o listed investme
investment
nt se-urities
se-urities sin-e
sin-e t1e end o
o
t1e period,
e! None
None of the
the a#o
a#o5e
5e!!
RFJPIA CP LE$EL 5 – Auditing Problems %!IFFICLT &E"TION '2)
All items of income and exense recognied in a eriod must #e included in rofit or loss unless a standard
or an interretation re9uires otherwise! ,herefore& the auditor is unli*el to 9uestion the exclusion of the following
from rofit or loss& excet/
a! Ch
Chan
anges
ges in
in re5alu
re5aluat
ation
ion sur
surlu
lus!
s!
#!
c!
d,
e!
Gains and losses
losses on
on remeasuring
remeasuring a5aila#le
a5aila#le for sale financial
financial assets!
assets!
Gains and
and losses arising from translatin
translatingg the financial
financial statemen
statements
ts of a foreign
foreign oeration!
oeration!
T1e inee-tive
inee-tive portion
portion o
o g.ins .nd
.nd losses on
on 1edging instruments
instruments in . -.s1
-.s1 lo* 1edge,
1edge,
None
None of the
the a#o
a#o5e
5e!!
RFJPIA CP LE$EL 5 – Auditing Problems %!IFFICLT &E"TION '3)
0n Januar %& '((6& 8u*e Coman& a financial ser5ices entit which is also in5ol5ed in real estate
de5eloment&
de5elom
ent& has urchased a lot of land in Ba*ati Cit for P'&(((&((( which it intends to de5elo and e5entuall
sell! 0n Jul %& '((6& 8u*e Coman urchased
urchased %( assenger 5ehicles for a total considerat
consideration
ion of P'&+((&(((!
8u*e Coman)s
Coman)s intention was to use the assenger 5ehicles
5ehicles to transort 8u*e Coman)
Coman)ss emloees! 8u*e
Coman uses the straight-line dereciation method for the assenger 5ehicles with no exected sal5age 5alue and
an estimated useful life of > ears!
0n "ecem#er $%& '(%(& 8u*e Coman entered in a lease agreement with John Coman for its land in
Ba*ati Cit
Cit and its assenger
assenger 5ehicles!
5ehicles! "e5eloment
"e5eloment cost incurred
incurred until "ecem#er
"ecem#er $%& '(%( was
was P<((&(((! ,he
fair 5alues of the land in Ba*ati Cit and the %( assenger 5ehicles were P'&6+(&((( and P'&%>%&'+( resecti5el!
Assets classified # 8u*e Coman as in5estment roerties are resented at fair 5alue!
At the end of '(%%& the fair 5alues of land and %( assenger 5ehicles were P$&%((&((( and P'&'(%&'+(
resecti5el! ,he gain DlossE to #e reorted in '(%( in relation to the reclassification to in5estment roert is/
Ans*er+ P250/000,
RFJPIA CP LE$EL 5 – Auditing Problems %!IFFICLT &E"TION '4)
0n Januar %& '((6& 8u*e Coman& a financial ser5ices entit which is also in5ol5ed in real estate
de5eloment&
de5elom
ent& has urchased a lot of land in Ba*ati Cit for P'&(((&((( which it intends to de5elo and e5entuall
sell! 0n Jul %& '((6& 8u*e Coman urchased
urchased %( assenger 5ehicles for a total considerat
consideration
ion of P'&+((&(((!
8u*e Coman)s
Coman)s intention was to use the assenger 5ehicles
5ehicles to transort 8u*e Coman)
Coman)ss emloees! 8u*e
Coman uses the straight-line dereciation method for the assenger 5ehicles with no exected sal5age 5alue and
an estimated useful life of > ears!
0n "ecem#er $%& '(%(& 8u*e Coman entered in a lease agreement with John Coman for its land in
Ba*ati Cit
Cit and its assenger
assenger 5ehicles!
5ehicles! "e5eloment
"e5eloment cost incurred
incurred until "ecem#er
"ecem#er $%& '(%( was
was P<((&(((! ,he
fair 5alues of the land in Ba*ati Cit and the %( assenger 5ehicles were P'&6+(&((( and P'&%>%&'+( resecti5el!
Assets classified # 8u*e Coman as in5estment roerties are resented at fair 5alue!
At the end of '(%%& the fair 5alues of land and %( assenger 5ehicles were P$&%((&((( and P'&'(%&'+(
resecti5el!
,he re5aluation
Ans*er+
P(50/000, surlus #alance at "ecem#er $%& '(%% is/
RFJPIA CP LE$EL 5 – Auditing Problems %!IFFICLT &E"TION '5)
,he ear-end audit of the records of 1tamina Farms disclos
disclosed
ed a shortage
shortage in cash amounting
amounting to P;((&(((!
P;((&(((!
,he treasurer had concealed the fraud # increasing in5entories # P$((&(((& land # P%((&((( and accounts
recei5a#le # P'((&(((!
Faced with rosecution& the treasurer offered to surrender ;&((( 1tamina Farms shares owned # him! ,he
#oard of directors
directors acceted the offer&
offer& with the agreement that the treasurer
treasurer would a an deficienc
deficienc #etween the
shortage and the #oo* 5alue of the shares& after ad.usting for the fraud! ,he cororation would in turn a the
excess& if an&
an& of the #oo* 5alue o5er the shortage! As of "ecem#er $%& '(%(& there were 2(&((( common shares
issued and outstanding with a ar 5alue of P%(( Retained earnings as of Januar %& '(%( was P%&;((&((( and net
income from '(%( oerations was P%&2((&(((!
Considering the a#o5e information& answer the following& what would #e the #oo* 5alue er share for
uroses of the agreement@
Ans*er+ P(=5,
CLINC@ER &E"TION"
RFJPIA CP LE$EL 5 – Auditing Problems %CLINC@ER &E"TION '()
If the auditee has a material amount of treasur stoc* on hand at ear-end& the auditor should
., Count t1e -ertii-.
-ertii-.tes
tes .t t1e s.me
s.me time
time ot1er se-urities
se-urities .re
.re -ounted,
-ounted,
#! Count the
the certificates
certificates onl
onl if the coman
coman had
had treasur
treasur stoc* transactions
transactions during
during the ear
ear!!
c! No count the
the certificate
certificatess if treasur
treasur stoc* is a deduction
deduction from shareholders)
shareholders) e9uit!
e9uit!
d! Count the
the certificates
certificates onl
onl if the coman
coman classif
classifies
ies treasur
treasur stoc*
stoc* with other
other assets!
assets!
e! Confirm the transacti
transaction
on with
with the 1ecurities
1ecurities and =xchange
=xchange Commissio
Commission!
n!
RFJPIA CP LE$EL 5 – Auditing Problems %CLINC@ER &E"TION '2)
In auditing intangi#le assets& an auditor most li*el would re5iew or recomuted amortiation and determine
whether the amortiation eriod is reasona#le
r easona#le in suort of management)s financial statement assertion of/
Ans*er+ $.lu.tion,
RFJPIA CP LE$EL 5 – Auditing Problems %CLINC@ER &E"TION '3)
0n Januar '& '(%(& a tract of land that originall
originall cost P>((&((( was sold # ea5enl Coror
Cororation!
ation! ,he
coman
com
an recei5e
recei5edd a P%&'((&(((
P%&'((&((( note as ament!
ament! It #ears interest
interest rate
rate of 2: and is aa#le
aa#le in $ annual
annual
installments
install
ments of P2((&((( lus interest on the outstanding
outstanding #alance! ,he re5ailing
re5ailing rate of interest
interest for a note of this
te is %(:! ,he resent 5alue ta#le shows the following resent 5alue factors of % at %(:!
Present 5alue factor of % for $ eriods
(!<+%$'
Present 5alue factor of % for ' eriods
(!>';2+
Present 5alue factor of % for % eriod
(!6(6(6
Pr
Prese
esent
nt 5al
5alue
ue of
of an ordi
ordinar
nar annu
annuitit of % for
for $ er
erio
iods
ds
'!2>;>
'!2>;>++
?hat is the effecti5e interest income on the note recei5a#le for the ear ended "ecem#er $%& '(%(@
Ans*er+ P(0=/<;5,
RFJPIA CP LE$EL 5 – Auditing Problems %CLINC@ER &E"TION '4)
?hich of the following rocedures relating to the examination of accounts aa#le could the auditor
delegate entirel to the client)s emloees@
a! ,est footi
footings
ngs in the
the account
accountss aa#le
aa#le ledge
ledgerr!
#! Reconci
Reconcile
le unaid
unaid in5oic
in5oices
es to 5endor
5endorss stateme
statements!
nts!
-, Prep.re
Prep.re . s-1ed
s-1edule
ule o .--o
.--ounts
unts p.6.ble
p.6.ble,,
d! Bail
Bail confirm
confirmatio
ations
ns for sele
selecte
ctedd account
account #alanc
#alances!
es!
e! None
None of the
the a#o
a#o5e
5e!!
RFJPIA CP LE$EL 5 – Auditing Problems %CLINC@ER &E"TION '5)
0n 0cto#er $%& '(%(& 7eta Coman engaged in the following transactions/
0#tained
0#tai
ned a P+((&(((& six-month
six-month loan from Cit 7an*& discounted at %':! ,he coman ledge
ledgedd

P+((&((( of accounts recei5a#le as securit for the loan!
Factored P%&(((&((( of accounts recei5a#le without recourse on a non notification #asis with e
Coman! e charged a factoring fee of ': of the amount of recei5a#les factored
Coman
factored and withheld
%(: of the amount factored!
?hat is the total cash recei5ed from the financing of recei5a#les@
Ans*er+ P(/350/000,

FINAL RON!
EA"# &E"TION"
RFJPIA CP LE$EL 5 – Auditing Problems %"P") ACE &E"TION
Information ertaining to ,race Coman for the month of August aears #elow/
7alance er #an* statement
P$%(&(((
7alance er #oo*s
%><&+((
"eosit in transit
<(&(((
1er5ice charges
'&+((
Note collected # #an*
<+&(((
0utstanding chec*s
@
An analsis of the cancelled chec*s returned with the #an* statement re5eals the following/
Chec* for the urchase of merchandise
merchandise was drawn for P%++&((( #ut was recorded as P%+(&(((!
,he management wrote a chec* for tra5eling exenses of P'+&((( while out
out of town! ,he chec* was
not recorded!
?hat is the amount of outstanding chec*s on August $%& '(%(@
Ans*er+ P(50/000,


RFJPIA CP LE$EL 5 – Auditing Problems %NFJPIA) JOER &E"TION
! ,en 7an* granted a loan to a #orrower in the amount of P+&(((&((( on Januar %& '(%(! ,he interest rate
on the loan is %(: aa#le annuall starting "ecem#er $%& '(%(! ,he loan matures in fi5e ears on "ecem#er $%&
'(%2! ,en 7an* incurs P$6&2(( of direct loan origination cost and P%(&((( of indirect loan origination cost! In
addition& ,en 7an* charges the #orrower an >-oint nonrefunda#le loan origination fee! "etermine the carring
amount of the loan as of Januar %& '(%(&
Ans*er+ P4/<3B/400,
RFJPIA CP LE$EL 5 – Auditing Problems %FCC)
"uring an audit of an entit)s shareholders) e9uit accounts& the auditor determines whether there are
restrictions on retained earnings resulting from loans& agreements& or law! ,his audit rocedure most li*el is
intended to 5erif what management)s assertion@
Ans*er+ Present.tion .nd dis-losure
RFJPIA CP LE$EL 5 – Auditing Problems %LC)
0n 1etem#er %& '(%(& owe Coman offered secial termination #enefits to emloees who had
reached the earl retirement age secified in the coman)s ension lan! ,he termination #enefits consisted of
lum sum and eriodic future aments! Additionall& the emloees acceting the coman offer recei5e the usual
earl retirement ension #enefits! ,he offer exired on No5em#er $(& '(%(! Actual or reasona#l estimated
amounts on "ecem#er $%& '(%( relating to the emloees acceting the offer are as follows/
8um sum aments on Januar %& '(%%& P2<+&(((
Present 5alue of eriodic aments& P%++&(((
Reduction of accrued ension costs on "ecem#er $%& '(%( for the terminating emloees& P2+&(((
owe should reort total loss on termination #enefits at what amount@



Ans*er+ P5;5/000,
RFJPIA CP LE$EL 5 – Auditing Problems %"EC)
,he following totals are ta*en from the "ecem#er $%& '(%(& #alance sheet of 1treamer Coman/
Current assets
P$+(&(((
8ong-term assets
>((&(((
Current lia#ilities
'2(&(((
8ong-term lia#ilities
'<(&(((
Additional information/
Cash of P$>&((( has #een laced in a fund for the retirement of long-term de#t! ,he cash and longterm de#t ha5e #een offset and are not reflected in the financial statements!
8ong-term assets include P+(&((( in treasur shares!



Cash
P%2&(((
#een
set aside
to a taxes due! ,he cash and taxes aa#le ha5e #een of
offset
fset
and doofnot
aearhas
in the
financial
statements!
Ad5ances on salesersonsH
salesersonsH commissi
commissions
ons in the amount of P'%&((( ha5e #een made!
made! Also& sales
commissions aa#le total P'2&(((! ,he net lia#ilit of P$&((( is included in Current 8ia#ilities!
After ma*ing an necessar changes& comute for the totals of 1treamerHs current assets!
Ans*er+ P3;5/000,

RFJPIA CP LE$EL 5 – Auditing Problems %"MC)
ChingChing has #een emloed as an accountant # Iran& Inc! for a num#er of ears! 1he handles all
accounting duties& including the rearation of financial statements! ,he following is a statement of earned surlus
resented # ChingChing/
Ir.n/ In-,
"TATEMENT
"TA
TEMENT OF EARNE! "RPL" 20(0
20 (0
7alance& %%(6
P$;+&(((
Increase in '(%( amortiation exense
+&(((
Gain on sale of trading securities
D$&(((E
Interest re5enue
'&(((
Net income for '(%(
%+(&(((
"ecreased dereciation due to increased life
%$&(((
"i5idends aid D'(: still unaidE
>(&(((
8oss on sale of e9uiment
'&+((
8oss on earth9ua*e
>$&(((
8.l.n-e/ (23((0
P=00/500
7ased on the foregoing information& determine the amount of net income that ChingChing should reort in
its income statement for '(%(@
Ans*er+ P==/500,
RFJPIA CP LE$EL 5 – Auditing Problems %"FDC)
Field Coman)s shareholders) e9uit #alances at Januar %& '(%( were as follows/
1hare caital
P%&+((&(((
1hare remium
$&(((&(((
Retained earnings
'&(((&(((
,he following '(%( transactions and other information relate to the shareholders) e9uit accounts/
Field
Fie
ld had 2((&((
2((&(((( autho
authori
ried
ed shar
shares
es of P+ ar&
ar& of wh
whic
ichh $(
$((&(
(&(((
(( sh
shar
ares
es were
were is
issu
sued
ed an
andd
outstanding!
0n Barch +& '(%(& Field ac9uired +(&((( shares for P%( er share to #e held as treasur! ,he shares
were originall issued at P%+ er
 er share! Field uses the cost method to account for treasur share!
0n Jul %+& '(%(& Field declared and distri#uted a roert di5idend of in5entor! ,he in5entor had a
P+((&((( carring 5alue and a P;((&((( fair mar*et 5alue!
Field)s net income for '(%( was P+((&(((!
Gi5en the information a#o5e and as a result of our audit& Field Coman should reort total shareholder)s
e9uit on "ecem#er $%& '(%( at what amount@
Ans*er+ P</000/000,




A$ERA7E &E"TION"
RFJPIA CP LE$EL 5 – Auditing Problems %AIC) ACE &E"TION
following
information
1onic Coman)s
accounts
of "ecem#er
'(%(!
Accounts,he
aa#le
er general
ledgerrelates
control to
amounted
to P+&22(&(((&
net of aa#le
P'2(&(((as
de#it
#alances in $%&
suliers)
accounts! ,he unaid 5oucher file included the following items that not had #een recorded as of "ecem#er $%&
'(%(/
A Coman  P''2&((( merchandise shied on "ecem#er $%& '(%(& F07 destination recei5ed
recei5ed on
Januar %(& '(%%!
7& Inc!  P%6'&((( merchandise shied on "ecem#er ';& '(%(& F07 shiing oint recei5ed on
Januar %;& '(%%!
C 1uer 1er5ices  P%22&((( .anitorial ser5ices for the three-month eriod ending Januar $%& '(%%!
B=RA8C0  P;<&'(( electric #ill co5ering the eriod "ecem#er %;& '(%( to Januar %+& '(%%!
0n "ecem#er '>& '(%(& a sulier authoried 1onic to return goods #illed at P%;(&((( and shied on
"ecem#er '(& '(%(! ,he goods were returned # 1onic on "ecem#er '>& '(%(& #ut the P%;(&((( credit memo was
not recei5ed until Januar ;& '(%%! "etermine the amount if an& that should #e reorted as current lia#ilit in
1onic)s "ecem#er $%& '(%( #alance sheet!
Ans*er+ P5/;4(/<00,




RFJPIA CP LE$EL 5 – Auditing Problems %CTC) JOER &E"TION
An audit assistant found a urchase order for a regular sulier in the amount of P+&+((! ,he urchase
order was dated after receit of goods! ,he urchasing agent had forgotten to issue urchase order! Also a
dis#ursement of P2+( for materials did not ha5e a recei5ing reort! ,he assistant wanted to select additional
urchase orders for in5estigation #ut was unconcerned a#out lac* of recei5ing reort! ,he audit director should/
a! Agree
Agree with the assistant
assistant #ecause
#ecause the amount
amount of the urchase
urchase order
order excetion
excetion was consider
considera#l
a#l
larger than the recei5ing reort excetion
#! Agree
Agree with the assistant
assistant #ecause
#ecause the cash
cash dis#ursem
dis#ursement
ent cler*
cler* had #een
#een assured
assured # the recei5i
recei5ing
ng
cler* that the failure to fill out a reort didn)t haen 5er often!
c! "isagree
"isagree with the assistant
assistant #ecause
#ecause two ro#lems
ro#lems ha5e
ha5e an e9ual ris* of loss
loss associated
associated with
with them!
d, !is.gre
!is.greee *it1 t1e .ssist.
.ssist.nt
nt be-.use
be-.use t1e l.-?
l.-? o . re-eivi
re-eiving
ng repo
report
rt 1.s . gre.ter
gre.ter ris? o loss
loss
.sso-i.ted *it1 it,
e! Neither
Neither agree nor disagree
disagree as it is the
the assistant)s
assistant)s resonsi#ilit
resonsi#ilit and
and it is at his discretion!
discretion!
RFJPIA CP LE$EL 5 – Auditing Problems %M)
You were a#le to gather the following in connection with our audit to the Chona Ann Coman for the ear
ended "ecem#er $%& '(%(/
((20(0
(23(20(0
Accounts recei5a#le
P;&2((&(((
P2&(((&(((
naid merchandise in5oices
@
'&;'%&(((
Accrued wages
>+&(((
%'+&(((
Ad5ertising sulies in5entor
$+&(((
<+&(((
Accrued ad5ertising
%2&'+(
2(&(((
Preaid Insurance
'+&(((
nexired insurance
2%&(((
"uring the ear& Chona Ann Coman had the following transactions/
Amount collected from customers
,otal aments to suliers of merchandise
,otal aments to suliers of merchandise of rior ears
?ages aid
Ad5ertising aid which includes P2(&((( alica#le in '((>
Insurance remium aid
?hat is the net urchases for '(%(@
Ans*er+ P((/<0=/000,
P%(&(((&(((
%$&;%>&(((
2&;$'&(((
$&(+(&(((
$((&(((
%'+&(((
RFJPIA CP LE$EL 5 – Auditing Problems %PCC)
0n Januar %& '(%(& Charmaine Cororation decided to disose of an item of lant that is carried in its
records at a cost of P6((&(((& with accumulated
accumulated dereciation
dereciation of P%;(&(((! "ereciation
"ereciation on the lant since it was
originall ac9uired has #een charged of P%(&((( er month! ,he lant will continue to #e oerated until it is sold& at
which time the oerations
o erations of the lant
la nt will #e outsourced!
ou tsourced! ,he coman
coma n undertoo*
undertoo * all the necessar
necess ar actions
action s to #e
a#le to classif the asset as held for sale! It is estimate
estimatedd that it could sell the lant for its fair 5alue& P<'(&(((&
P<'(&(((&
incurring P'(&((( selling costs in the rocess! ,he lant has #een dereciated at an amount of P%(&((( er month!
0n Barch $%& '(%(& the lant had not #een sold #ut& due to shortage of this te of lant& there had #een
an increase in the fair 5alue
5alue to P<<(&(((! 0n June $(& '(%(& Charmaine
Charmaine sold the lant
lant for P<>+&((( incurring
incurring
P'+&((( selling costs! ,he dereciation exense to #e recognied in '(%( is/
Ans*er+ P0,
RFJPIA CP LE$EL 5 – Auditing Problems %M"M)
,he following information is a5aila#le from our client& 1an Coman for the ear ended "ecem#er $%&
'(%(/
Cash recei5ed from customers
P+&(((&(((
Rent recei5ed
%((&(((
Interest recei5ed
+(&(((
Cash aid to suliers and emloees
$&(((&(((
,axes aid
'((&(((
Interest aid on long-term de#t
2((&(((
Cash di5idends aid
+((&(((
7ased on our audit& how much is the net cash ro5ided # oerating acti5ities@
Ans*er+ P(/550/000,
RFJPIA CP LE$EL 5 – Auditing Problems %M$C)
In '(%(& Bount Cororation ac9uired land # aing P$<+&((( down and signing a note with a maturit
5alue of P+&(((&(((!
P+&(((&(((! 0n the note)s due date& "ecem#er
"ecem#er $%& '(%(& Bount owed P'((&((
P'((&(((( of accrued interest and
P+&(((&((( rincial on the note! Bount was in financial difficult and was una#le to ma*e an aments! Bount
and the #an* agreed to amend the note as follows/
,he P'((&((( of interest due on "ecem#er $%& '(%( was forgi5en!
,he rincial of the note was reduced from P+&(((&((( to P2&<+(&((( and the maturit date extended
% ear to "ecem#er $%& '(%%!
Bount would #e re9uired to ma*e one interest ament totaling P%+(&((( on "ecem#er $%& '(%(!
As a result of the trou#led de#t restructuring&
restructuring& Bount should reort a gain& #efore taxes& in its '(%( income
statement of/
Ans*er+ P300/000,



RFJPIA CP LE$EL 5 – Auditing Problems %JPI)
follows/ ,aal Coman is a calendar ear entit! Its financial statements for '((6 and '(%( contained error as
%'$%(6 In5entor understated
P$+&(((
%'$%%( In5entor understated
%(&(((
'((6 "ereciation o5erstated
'+&(((
'(%( "ereciation understated
>&(((
%'$%(6 Preaid Insurance o5erstated
+&(((
%'$%%( nearned Rent o5erstated
2&(((
%'$%%( Accrued 1alaries understated
'(&(((
7 how much would the retained earnings at "ecem#er $%& '((> #e under or o5erstated@
Ans*er+ P ((/000 underst.ted,
RFJPIA CP LE$EL 5 – Auditing Problems %F")
'(%(/
,he retained earnings account for Gondola Coman shows the following charges and credits for the ear
7alance& %%%(
8oss from fire
Goodwill imairment
1toc* di5idend
8oss on sale of e9uiment
Comensation of '((6 not accrued
8oss on retirement of reference share
1hare remium
Gain on earl retirement of #onds
Gain on life insurance settlement
Prior eriod error correction  credit
Net income for the ear
P'&;((&(((
+(&(((
'+(&(((
<((&(((
'((&(((
+((&(((
$+(&(((
;((&(((
%((&(((
2+(&(((
2((&(((
$&(((&(((
,reasur share aroriation for '(%(
%&(((&(((
ow much is Gondola)s unaroriated retained earnings at "ecem#er $%& '(%(@
Ans*er+ P3/500/000,
!IFFICLT &E"TION"
RFJPIA CP LE$EL 5 – Auditing Problems %"IC) ACE &E"TION
In the course of our examination of the "ecem#er $%& '(%%& financial statements of A9uino Inc!& ou
disco5ered certain errors
disco5ered
errors that had occurred
occurred during
during '(%( and '(%%!
'(%%! No errors were corrected
corrected during
during '(%(! ,he
errors are summaried #elow/
7eginning merchandise in5entor in '(%( was understated # P'+6&'((!
Berchandise costing P<'&((( was sold for P%'(&((( to James Cor! on "ecem#er '>& '(%(& #ut the
sale was recorded in '(%%!
'(%%! ,he merchandise
merchandise was shied F07 shiing oint and was included in
ending in5entor!
in5entor! A9uino uses the eriodic in5entor sstem!
A two-ear
two-ear fire insurance
insurance olic was urchased
urchased on Ba %& '(%(& for P%<'&>((! ,he whole amount
was charged to Preaid Insurance!
In surance! No ad.usting entr was reared
reare d in '(%( and '(%%!
A one-ear note recei5a#le of P'>>&((( was held # A9uino Inc! #eginning 0cto#er %& '(%(!
Pament of the %(: note and accrued interest
interest was recei5ed uon matur
maturit
it!! No ad.usting
ad.usting entr was
made on "ecem#er $%& '(%(!





=9uime
=9ui
ment
nt with
a %(was
earrecorded
useful
useful life
was'(%(
urchase
urch
Januar
Januar
for P%&%<;&(
P%&%
No
dereciation
exense
during
or ased
'(%d%! on
'(%%!
Assume
that%&the'(%(&
e9uiment
has<;&(((!
no((!
residual
5alue and that A9uino Inc! uses the straight-line method for recording dereciation!
,he coman reorted a P%&+((&((( net income in '(%( and a P%&<+(&((( net income in '(%%!
7ased on the information a#o5e and as a result of our audit& what is the correct net income in '(%(@
Ans*er+ P3<3/000,
RFJPIA CP LE$EL 5 – Auditing Problems %"TC) JOER &E"TION
,he in5ento
in5entor
r on hand
hand at "ecem#er
"ecem#er $%& '(%( for Fair Coman
Coman 5alued
5alued at a cost
cost of P62<&>((!
P62<&>((! ,he
following items were not included in this in5entor amount/
Purchased goods& in transit& shied F07 destination in5oice rice P$'&((( which included freight
charges of P%&;((!
Goods
Go
ods held
held on consi
consignm
gnmen
entt # Fair
Fair Co
Com
man
an at a sa
sales
les r
ric
icee of P'>&
P'>&(((
(((&& in
incl
cludi
uding
ng sa
sales
les



commission of '(: of the sales rice!
Goods sold to Garcia Coman& under terms F07 destination& in5oiced for P%>&+(( which includes
P%&((( freight charges to deli5er the goods! Goods are in transit!
Purchased goods in transit& terms F07 shiing oint& in5oice rice P2>&(((& freight cost& P$&(((!
Goods out on consignment to Banil Coman& sales rice P$;&2((& shiing cost of P'&(((!
Assuming
Assumi
ng that the comanHs
comanHs selling rice is %2(: of in5entor cost& the ad.usted cost of Fair ComanHs
ComanHs
in5entor at "ecem#er $%& '(%( should #e/
Ans*er+ P(/03B/300,



RFJPIA CP LE$EL 5 – Auditing Problems %D)
At*ins #ought
#ought fi5e identical lots of de5eloment
de5eloment land for P' million in '(%(! 0n Januar '& '(%' At*i
At*ins
ns
sold three of the lots of land to an in5estment coman&
coman& 8and#an*& for a total of P'!2 million! ,his rice was #ased
on <+: of the fair mar*et 5alue of P$!' million as determined # an in
indeendent
deendent sur5eor at the date of sale! ,he
terms of the sale contained two clauses/
At*ins can re-urchase the lots of land for the full fair 5alue of P$!' million Dthe 5alue determined of
the date of saleE an time until "ecem#er $%& '(%2 and
0n % Januar '(%+& 8and#an* has the otion to re9uire At*ins
At*ins to re-urchase
re-urchase the roerties for P$!'
million! You ma assume that 8and#an* see*s a return on its in5estments of %(: er annum!


#/
If At*ins recorded the legal form of the transaction instead of its su#stance& rofit for '(%' will #e o5erstated
Ans*er+ P(/440/000,
RFJPIA CP LE$EL 5 – Auditing Problems %COC)
Potter Coman
Coman is in its first ear of oeration
oeration and is using the cash #asis of accoun
accounting!
ting! ,he coman
resented the following cash receits and dis#ursement records for '(%(/
Cash receits
P$>2&(((
Cash dis#ursements
D'2<&+((E
P%$;&+((
,he management re9uested ou to comute its income under accrual #asis! ,he following information are
deemed rele5ant in our analsis/
"ereciation of lant assets for '(%( comuted # straight-line method is P$%&+((!
Preaid insurance of P+&2((& two-thirds of which relates to '(%%& is included in the '(%( cash
dis#ursement figure! ,his amount was recognied as insurance exense when it was aid!
Porter Coman
Coman recei5ed P$;&(((
P$;&((( in ad5ance rent for sace in its #uilding! ,he entire amou
amount
nt is
included in the cash receits figure
figure and was recognied as rent re5enue when recei5e
recei5ed!
d! owe5er&
owe5er&
P'%&((( of it was sace that will #e ro5ided in '(%%!
=mloees are due P>&2(( at the end of '(%(!
Interest amounting to P6&+%( from in5estment is recei5a#le at the end of '(%(!
You estimate that our '(%( fee for accounting ser5ices that ha5e not #een #illed will #e P%&+((!
?hat is the total lia#ilities to #e reorted as of the #alance sheet date under the accrual #asis@
Ans*er+ P30/B00,
RFJPIA CP LE$EL 5 – Auditing Problems %IIT)
on insection of the records of =5er#odHs Coman& the following facts were disco5ered for the ear
ended "ecem#er $%& '(%(/
A fire remium
remium of P2&((( was aid and charged as insurance
insurance exense in '(%(! ,he fire insurance
olic co5ers one ear from Aril %& '(%(!
In5entor on Januar %& '(%( was understated # P>&(((!
In5entor on "ecem#er $%& '(%( was understated # P%'&(((!
7usiness taxes of P+&+(( for the fourth 9uarter of '(%( were aid on Januar '(& '(%% and charged
as exense in '(%%!
' (%%!
0n "ecem#er +& '(%(& a cash ad5ance of P%(&((( # a customer was recei5ed for goods to #e
deli5ered in Januar '(%%!
'(%%! ,he P%(&((( was credited to sales! ,he comanHs gross rofit on sales
is 2(:!
,he net income of =5er#odHs Coman on the income statement for the ear ended "ecem#er
$%& '(%(& #efore an ad.ustments for the a#o5e information& is P%++&(((!
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






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
?hat is the ad.usted net income of =5er#od)s Coman for the ear ended for the "ecem#er $%& '(%(@
Ans*er+ P(44/500,
RFJPIA CP LE$EL 5 – Auditing Problems %L!C)
0n Ba ;& '(%( a flash flood caused damage to the merchandise stored in the warehouse of Ca#anatuan
Coman!! You were as*ed to su#mit an estimate
Coman
estimate of the merchandise
merchandise destroed in the warehouse!
warehouse! ,he following
data were esta#lished/
Net sales for '((6 were P>((&(((& matched against cost of P+;(&(((!
Berchandise in5entor& Jan! %& '(%( was P'((&(((& 6(: of which was in the warehouse and %(: in
downtown showrooms!
For Jan! %& '(%( to date of flood& ou ascertained in5oice 5alue of urchases Dall stored in the
warehouseE& P%((&((( freight
freigh t inward& P2&((( urchases retu
returned&
rned& P;&(((!
Cost of merchandise transferred from the warehouse to show-rooms was P>&(((& and net sales from
Januar % to Ba ;& '(%( Dall warehouse stoc*E were P$'(&(((!
Assuming gross rofit rate in '(%( to #e the same as in the re5ious ear& the estimated merchandise
destroed # the flood was/
Ans*er+ P4</000,
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RFJPIA CP LE$EL 5 – Auditing Problems %8")
John Cor! has the following data relating to accounts recei5a#le for the ear ended "ecem#er $%& '(%(/
Accounts recei5a#le& Januar %& '(%(
P2>(&(((
Allowance for dou#tful accounts& Januar %& '(%(
%6&'((
1a
1ale
less dur
durin
ingg tthe
he ea
earr& aallll on acc
accou
ount
nt&& term
termss '%(
'%(&& %%+
%%+&& nn;
;((
'&
'&2(
2((&
(&((
((((
Cash recei5ed from customers during the ear
'&+;(&(((
Accounts written off during the ear
%<&;((
An analsis of cash recei5ed from customers during the ear re5ealed that P%&2%%
P%&2%%&'((
&'(( was recei5ed from
customers a5ailing the %(-da discount eriod& P<6'&((( from customers a5ailing the %+-da discount eriod&
P2&>(( reresented reco5er of accounts written-off& and the #alance was recei5ed from customers aing #eond
the discount eriod!
,he allowance for dou#tful accounts is ad.usted so that it reresents certain ercentage of the outstanding
accounts recei5a#le at ear end! ,he re9uired ercentage at "ecem#er $%& '(%( is %'+: of the rate used on
"ecem#er $%& '((6! ,he dou#tful accounts exense for the ear ended "ecem#er $%& '(%( is/
Ans*er+ P=/(20,
RFJPIA CP LE$EL 5 – Auditing Problems %CM)
,he =5ita Coman uses cash #asis accounting
accounting for their records! "uring '(%(& =5ita collected
collected P+((&(((
from its customers& made aments of P'((&((( to its suliers for in5entor& and aid P%2(&((( for oerating
costs! =5ita wants
wants to reare accrual
accrual #asis statements
statements!! In gathering
gathering information
information for the accrual
accrual #asis financial
financial
statements& =5ita disco5ered the following/
Customers owed =5ita P+(&((( at the #eginning of '(%( and P$+&((( at the end of '(%(!
=5ita owed suliers P'(&((( at the #eginning of '(%( and P'<&((( at the end of '(%(!
=5itaHs #eginning in5entor was P2'&(((& and its ending in5entor was P22&(((!
=5ita had reaid exenses of P+&((( at the #eginning of '(%( and P<&2(( at the end of '(%(!
=5ita had accrued exenses of P%'&((( at the #eginning of '(%( and P%6&((( at the end of '(%(!
"ereciation for '((> was P+%&(((!
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"etermine the accrual #asis net income of =5ita Coman for the ear ended "ecem#er $%& '(%(!
Ans*er+ P;4/400,
RFJPIA CP LE$EL 5 – Auditing Problems %MTIM)
1osset Coman is a Philiine cororation that urchases in5entor from 1 manufacturers! A recent
in5entor urchase in5ol5ed the following e5ents/
No5! %'  Purchased raw materials from amton 7as Coman& a 1 manufacturer& amounting to 1
'+(&(((& aa#le in ;( das! Current exchange rate is P+(!2+! 1osset uses eretual in5entor sstem
and de#its in5entor account!
"ec! $%  Bade ear-end ad.usting entr relating to the K'+(&((( accounts aa#le to amton 7as!
Current exchange rate is P+(!>6!
Jan! %%  Issued a chec* amounting to K'+(&((( in full ament of the accounts aa#le to amton 7as
and recorded a gain amounting to P%''&+((!
?hat is the exchange rate of the Philiine eso to 1 dollar on Januar %%@
Ans*er+ P50,40,
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RFJPIA CP LE$EL 5 – Auditing Problems %L")
In confirming with an outside agent& such as financial institutions& that the agent is holding in5estment
securities in the client)s name& an auditor most li*el gathers e5idence in suort of management)s financial
statement assertion of existence or occurrence and what other assertion@
Ans*er+ Rig1ts .nd oblig.tions,