AUDITING
FINAL PRE-BOARD EXAMINATION
OCAMPO/OCAMPO/SOLIMAN/UY/RICAFRENTE
April 24, 2022
Multiple Choice. Select the letter that corresponds to the best answer. This examination consists of
70 items only. (Please ignore the extra answer options in the answer sheet after number 70.) The exam
is good for three (3) hours. Good luck!
1. Sustainability reporting can incorporate which of the following?
a. environmental reporting
b. social reporting
c. business viability reporting
d. all of the above
2. An operational audit has as one of its objectives to:
a. determine whether the financial statements fairly present the entity’s operations.
b. evaluate the feasibility of attaining the entity’s operational objectives.
c. make recommendations for improving performance.
d. report on the entity’s relative success in attaining profit maximization.
3. Prior to beginning the fieldwork on a new audit engagement in which he does not possess industry
expertise, the CPA should
a. reduce audit risk by lowering the preliminary levels of materiality.
b. design special substantive tests to compensate for the lack of industry expertise.
c. engage financial experts who are familiar with the nature of the industry.
d. obtain a knowledge of matters that relates to the nature of the entity's business and industry.
4. In which of the following order would the auditors perform the following steps?
a. Determine audit risk; assess control risk; determine detection risk; set materiality.
b. Set materiality; determine audit risk; assess control risk; determine detection risk.
c. Set materiality; assess control risk; determine detection risk; determine audit risk.
d. Determine audit risk; set materiality; assess control risk; determine detection risk.
5. An auditor need not abide by a particular auditing standard if the auditor believes that:
a. the issue in question is immaterial in amount.
b. more expertise is needed to fulfill the requirement.
c. the requirement of the standard has not been addressed by the AASC.
d. any of the above three are correct.
6. In connection with the examination of financial statements by an independent auditor, the client suggests
that members of the internal audit staff be utilized to minimize audit costs. Which of the following tasks
could most appropriately be delegated to the internal audit staff?
a. Selection of accounts receivable for confirmation, based upon the internal auditor's judgment as to how
many accounts and which accounts will provide sufficient coverage.
b. Preparation of schedules for negative accounts receivable responses.
c. Evaluation of the internal control for accounts receivable and sales.
d. Determination of the adequacy of the allowance for doubtful accounts.
7. An auditor evaluates the existing internal control in order to
a. Determine the extent of substantive tests which must be performed.
b. Determine the extent of control tests which must be performed.
c. Ascertain whether irregularities are probable.
d. Ascertain whether any employees have incompatible functions.
8. During the review of a small business client's internal control system, the auditor discovered that the
accounts receivable clerk approves credit memos and has access to cash. Which of the following controls
would be most effective in offsetting this weakness?
Page 1 of 14
a.
b.
c.
d.
The owner reviews errors in billings to customers and postings to the subsidiary ledger.
The controller receives the monthly bank statement directly and reconciles the checking accounts.
The owner reviews credit memos after they are recorded.
The controller reconciles the total of the detail accounts receivable accounts to the amount shown in
the ledger.
9. “Absence of reasonable care that can be expected of a person in a set of circumstances” defines:
a. pecuniary negligence.
b. gross negligence.
c. extreme negligence.
d. ordinary negligence.
10. Of the following audit procedures, which best supports the valuation objective?
a. Performing a lower of cost or market test of the client's inventories.
b. Reviewing a contingent liability footnote for proper wording.
c. Searching for unrecorded liabilities.
d. Observing the client's year-end physical inventory taking.
11. Which of the following statements is correct with respect to the auditor’s use of analytical procedures?
a. Analytical procedures are time saving procedures that auditors may employ at their discretion.
b. Analytical procedures are powerful tools that are required to be used during the planning and testing
phases of the audit.
c. Analytical procedures may be used to identify misstatements in a client’s accounts.
d. Analytical procedures are required to be used during the planning and completion phases of the audit.
12. The inventory of a subsidiary consists of 12,980 items valued at P19,625,000. The inventory data are not
available in computer readable form, but are contained in 217 pages of printout with 60 lines per page.
Each page has a page total. Based on the last audit, the auditor expects there to be a few errors of
overstatement. The most efficient sampling technique to test the reasonableness of the stated
value
is
a. Stratified mean-per-unit estimation.
b. Probability proportional to size sampling (PPS)
c. Difference estimation.
d. Ratio estimation.
13. A system of internal control, regardless of how carefully designed and implemented, contains certain
inherent limitations. Which of the following errors or irregularities is not caused by an inherent limitation.
a. The president and chief executive officer, with the assistance of the corporate controller, inflated
earnings by recording fictitious sales at year-end.
b. A newly-installed electronic data processing system failed to provide for a comparison of sales order
amount with prior customer balance and credit limit. This resulted in numerous sales to customers
who had already exceeded their credit limits.
c. Numerous recording errors occurred because persons analyzing and recording transactions did not
have the necessary accounting background.
d. A computer programmer and a computer operator conspired to divert funds from the company to an
account controlled by the dishonest employees.
14. The most effective control for ensuring that customers are billed only for goods shipped is to
a. Require that carriers sign properly completed bills of lading.
b. Implement a policy that prevents the mailing of sales invoices to customers in the absence of a
properly approved shipping order and a bill of lading signed by the carrier.
c. Require that all shipments be approved by accounting.
d. Prohibit goods from leaving the warehouse without being accompanied by a signed bill of lading and a
properly approved shipping order.
Page 2 of 14
15. The possibility of losing a large amount of information stored in computer files most likely would be
reduced by the use of
a. Back-up files
b. Check digits
c. Completeness tests
d. Conversion verification.
16. The auditor issued a qualified opinion covering the financial statements of Client A for the year ended
December 31, 2021. The reason for the qualification was a departure from GAAP. In presenting
comparative statements for the years ended December 31, 2021 and 2022, the client revised the 2021
financial statements to correct the previous departure from GAAP. The auditor's 2022 report on the
12/31/21 and 12/31/22 comparative financial statements will
a. Express a qualified opinion on the 2021 financial statements and an unqualified opinion on the 2022
statements.
b. Express unqualified opinions on both the 2021 and 2022 financial statements.
c. Retain the qualified opinion covering the 2021 statements, but add an explanatory paragraph describing
the correction of the prior departure from GAAP.
d. Render qualified audit opinions for both 2021 and 2022 financial statements given the 2022 carryover
effect of the 2021 error.
17. An auditor is verifying the existence of newly acquired fixed assets recorded in the accounting records.
Which of the following is the best evidence to help achieve this objective?
a. Documentary support obtained by vouching entries to subsidiary records and invoices.
b. Physical examination of a sample of newly recorded fixed assets.
c. Oral evidence obtained by discussions with operating management.
d. Documentary support obtained by reviewing titles and tax returns.
18. Which of the following best describes the auditor's responsibility for "other information" included in the
annual report to stockholders which contains financial statements and the auditor's report?
a. The auditor has no obligation to read the "other information."
b. The auditor has no obligation to corroborate the "other information," but should read the "other
information" to determine whether it is materially inconsistent with the financial statements.
c. The auditor should extend the examination to the extent necessary to verify the "other information."
d. The auditor must modify the auditor's report to state that the "other information is unaudited" or "not
covered by the auditor's report."
19. The auditor should normally concentrate on the key factors and assumptions used by management
including all of the following except those that are
a. insignificant to the accounting estimates.
b. sensitive to variations.
c. deviations from historical patterns.
d. susceptible to misstatements and biases.
20. Which of the following appropriately describes the auditor’s procedures with respect to subsequent
events?
a. The procedures to identity events that may require adjustments of, or disclosure in, the financial
statements would be performed as early as practicable.
b. Those routine procedures that are applied to specific transactions occurring after the period ends are
designed to obtain sufficient appropriate audit evidence that all events up to the date of the audit report
have been identified.
c. When a component is audited by another CPA, the auditor would consider the other auditor’s procedures
regarding events after period end and the need to inform the other auditor of the planned date of the
audit report.
d. The auditor is responsible to inquire regarding the financial statements after the date of the auditor’s
report.
21. Which of the following procedures is not included in a review of financial statements of a nonpublic entity?
Page 3 of 14
a.
b.
c.
d.
Inquiries of management
Inquiries regarding events subsequent to the balance sheet date
Any procedures designed to identify relationships among data that appear to be unusual
Communicating any material weaknesses discovered during the study and evaluation of internal
accounting control
22. In determining the sufficiency of evidential matter, which of the following would not normally be a factor?
a. Cost/benefit considerations
b. The sampling technique used
c. Audit risk
d. Materiality of the account
23. The professional accountants issued the following statement in their report: …, nothing came to our
attention that caused us to believe that the accompanying financial statements are not presented fairly, …
What is the nature of the report?
a. Special report on financial statements prepared under comprehensive basis of accounting
b. Qualified audit report
c. Review report
d. Audit report with limited reporting objective
24. Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to
a. permit cross-referencing and simplify supervisory review.
b. support the audit report.
c. eliminate the need for follow-up reviews.
d. determine that working papers adequately support the findings, conclusions, and reports.
25. Which one of the following is not considered a valid source of information about the client's processes?
a. Confirmation from third-parties
b. Review of the client's budget
c. A tour of the client's plant facility
d. Management inquiry
26. Which of the following statements is incorrect about audit evidence?
a. Evidence obtained from an independent source outside the client organization is more reliable than that
obtained from within.
b. Documentary evidence is more reliable when it is received by the auditor directly from an independent
third party.
c. Documents that originate outside the company are considered more reliable than those that originate
within the client’s organization.
d. External evidence, such as communications from banks, is generally regarded as more reliable than the
information obtained from the client.
27. Which of the following is not likely a source of information about the accounting system in the revenue
area?
a. Direct inquiry of customers.
b. Prior experience with the client.
c. Systems flowcharts prepared by the EDP department.
d. Financial reporting manuals.
28. What sequence of steps does an auditor undertake when identifying control procedures that are potentially
reliable in assessing control risk below the maximum?
a. Consider the errors or frauds that might occur, determine control procedures, identify control objectives,
and design tests of controls.
b. Determine control procedures, design tests of controls, consider the errors or frauds that might occur,
and identify control objectives.
c. Identify control objectives, consider the errors or frauds that might occur, determine control procedures,
and design tests of controls.
Page 4 of 14
d. Design tests of controls, determine control procedures, consider the errors or frauds that might occur,
and identify control objectives.
29. To achieve control when there is no billing department, the billing function should be performed by the
a. accounting department.
b. sales department.
c. shipping department.
d. credit and collection department.
30. In considering internal control within the revenue/receipt cycle, what is the purpose of a transaction walk
through?
a. To gain an assurance that employees are performing assigned functions accurately.
b. To confirm the results of the auditor’s understanding of the internal control structure.
c. To select documents for detailed tests of controls.
d. To verify the results of the auditor’s sampling plan.
31. A company has a policy of rotating employees’ assigned duties. This policy is most important for
employees who:
a. are not bonded.
b. maintain the detailed accounting records.
c. handle cash receipts.
d. have access to the general ledger.
32. While performing an audit of cash, an auditor begins to suspect kiting. Which of the following is the best
evidence that the auditor could obtain concerning whether kiting is taking place?
a. Documentary evidence obtained by vouching entries in the cash account to supporting documents.
b. Documentary evidence obtained by vouching credits on the latest bank statement to supporting
documents.
c. Evidence obtained by preparing a schedule of interbank transfers.
d. Oral evidence obtained through discussions with controller personnel.
33. Which of the following best explains why accounts payable confirmation procedures are not always used?
a. Inclusion of representations on accounts payable in the client representation letter eliminates the need
in most situations.
b. Accounts payable generally are immaterial and may be audited through using analytical procedures.
c. Creditors will press for payment when they receive the confirmation.
d. Confirmations are better at identifying overstatements than understatements, and overstatements are
not typically the major concern with accounts payable.
34. Client's inventory instructions should include all the following except
a. names of client personnel responsible for the count.
b. instructions for recording accurate descriptions.
c. instructions for auditors' test counts.
d. plans for controlling movement of goods.
35. The body mandated by law to promulgate rules and regulations affecting the practice of Accountancy.
a. Professional Regulation commission
b. Philippine Institute of Certified Public Accountants
c. Professional Regulatory Board of Accountancy
d. Commission on Higher Education
Page 5 of 14
PROBLEM NO. 1
Tae-mu Company engaged you to examine its books and records for the fiscal year ended June 30, 2022. The
company’s accountant has furnished you not only the copy of trial balance as of June 30, 2022 but also the copy
of company’s statement of financial position and statement of comprehensive income as at said date. The
following data appears in the cost of goods sold section of the statement of comprehensive income:
Inventory, July 1, 2021
Add Purchases
Total goods available for sale
Less Inventory, June 30, 2022
Cost of goods sold
P 500,000
3,600,000
4,100,000
700,000
P3,400,000
The beginning and ending inventories of the year were ascertained thru physical count except that no reconciling
items were considered. Even though the books have been closed, your working paper trial balance show all
account with activity during the year. All purchases are FOB shipping point. The company is on a periodic
inventory basis.
In your examination of inventory cut-offs at the beginning and end of the year, you took note of the following:
July 1, 2021
a. June invoices totaling to P130,000 were entered in the voucher register in June. The corresponding goods
not received until July.
b. Invoices totaling P54,000 were entered in the voucher register in July but the goods received during June.
June 30, 2022
c. Invoices with an aggregate value of P186,000 were entered in the voucher register in July, and the goods
were received in July. The invoices, however, were date June.
d. June invoices totaling P74,000 were entered in the voucher register in June but the goods were not received
until July.
e. Invoices totaling P108,000 (the corresponding goods for which were received in June) were entered the
voucher register, July.
f.
Sales on account in the total amount of P176,000 were made on June 30 and the goods delivered at that
time. Book entries relating to the sales were made in June.
QUESTIONS:
Based on the given information and the result of your cut-off tests, answer the following:
36. How much is the adjusted Inventory as of July 1, 2021?
a. P370,000
c. P576,000
b. P500,000
d. P630,000
37. How much is the adjusted Purchases for the fiscal year ended June 30, 2022?
a. P3,600,000
c. P3,894,000
b. P3,840,000
d. P3,914,000
38. How much is the adjusted Inventory as of June 30, 2022?
a. P500,000
c. P892,000
b. P784,000
d. P960,000
Page 6 of 14
39. Which statement is incorrect regarding audit of inventories in accordance with Philippine Standards on
Auditing?
a. When inventory is material to the financial statements, the auditor shall obtain sufficient appropriate
audit evidence regarding the existence and condition of inventory by attendance at physical inventory
counting, unless impracticable.
b. The procedures involve in the attendance at physical may serve as test of controls or substantive
procedures depending on the auditor’s risk assessment, planned approach and the specific procedures
carried out.
c. If attendance at physical inventory counting is impracticable, the auditor shall modify the opinion in the
auditor’s report.
d. When inventory under the custody and control of a third party is material to the financial statements, the
auditor may obtain sufficient appropriate audit evidence regarding the existence and condition of that
inventory by requesting confirmation from the third party as to the quantities and condition of inventory
held on behalf of the entity.
40. Which statement is incorrect regarding audit of inventories?
a. Attendance at physical inventory counting involves inspecting the inventory to ascertain its existence
and evaluate its condition, and performing test counts.
b. Attendance at physical inventory counting is impracticable where inventory is held in a location that may
pose threats to the safety of the auditor.
c. Inspection of documentation of the subsequent sale of specific inventory items purchased prior to the
physical inventory counting may provide sufficient appropriate audit evidence about the existence and
condition of inventory if attendance at physical inventory counting is impracticable.
d. Verifying that all inventory owned by the client is on hand at the time of the count is one of the
independent auditor's objectives in the audit of inventories.
PROBLEM NO. 2
The client, Ha-ri Corp., obtained bank statements for Nov. 30 and Dec. 31, 2022 and reconciled the balances.
You obtained directly the statements of Jan. 12, 2023 and obtained the necessary confirmation. You have found
that there are no errors in addition or subtraction in the client’s books.
11/30/22
P344,420
271,260
35,000
88,240
12/31/22
P275,020
226,010
?
?
12/1-31/22
1/1-12/23
P 963,230
941,010
1,008,480
1,010,410
P 292,500
321,490
177,570
230,180
Balance, bank statement
Balance, company records
Deposits in transit
Outstanding checks
Receipts, cash records
Credits, bank statement
Disbursements, cash records
Charges, bank statement
The following information also was obtained:
a) Check no. 804 for P340 cleared by the bank in Dec. as P1,340. This was found in proving the bank statement.
The bank made the correction on Jan. 8, 2023.
b) A note of P20,000, sent to the bank for collection on Nov. 15, 2022, was collected and credited to the account
on Nov. 28, 2022, net of a collection fee of P80. The note was recorded in the cash receipts on Dec. 21, 2022,
at which date the collection fee was entered as a disbursement.
c) The client records returned checks in red in the cash receipts journal. The checks listed in the table were
returned by the bank.
Page 7 of 14
Co. A
Co. B
Amount
P3,270
6,730
Returned
12/6/22
12/27/22
Recorded
No entries
1/3/23
Redeposited
12/8/22
1/15/23
d) Two payroll checks for employee’s vacations totaling P5,500 were drawn on Jan. 3, 2023, and cleared the
bank on Jan. 8, 2023. These checks were not entered in the clients records because semi-monthly payroll
summaries are entered only on the 15th and the last day of each month.
QUESTIONS:
Based on the above and the result of your audit, compute for the following:
41. Deposits in transit as of Dec. 31, 2022
a. P37,220
c. P40,570
b. P40,490
d. P57,220
42. Outstanding checks as of Dec. 31, 2022
a. P86,310
c. P97,230
b. P93,960
d. P97,310
43. Adjusted cash balance as of Dec. 31, 2022
a. P217,280
c. P219,280
b. P218,280
d. P246,930
44. Deposits in transit as of Jan. 12, 2023
a. P12,500
c. P19,310
b. P15,960
d. P19,230
45. Outstanding checks as of Jan. 12, 2023
a. P33,700
c. P50,120
b. P46,850
d. P56,850
PROBLEM NO. 3
On Jan. 1, 2021, CHAIRMAN Company established significant influence over KANG Company by acquiring
60,000 ordinary shares, a 30% interest, for P570,000. The book value of KANG’s equity was P1,300,000 on Jan.
1, 2021. Since this purchase KANG earned profit and paid dividends as follows:
Year
2021
2022
Profit
P180,000
310,000
Dividends
P100,000
140,000
The fair value per share of KANG’s ordinary shares on Dec. 31, 2021 and 2022 was P8 and P9, respectively.
CHAIRMAN incorrectly accounted for this investment as a financial asset at fair value through profit or loss.
QUESTIONS:
Based on the given information and the result of your audit, answer the following: (Disregard income taxes)
46. The carrying amount of Investment in KANG Company as of Dec. 31, 2021 is understated by
a. P24,000
c. P114,000
b. P90,000
d. P144,000
47. Profit for 2021 is understated by
a. P24,000
b. P90,000
c. P114,000
d. P144,000
Page 8 of 14
48. The carrying amount of Investment in KANG Company as of Dec. 31, 2022 is understated by
a. P51,000
c. P105,000
b. P75,000
d. P165,000
49. Profit for 2022 is misstated by
a. P 9,000 over
b. P33,000 under
c. P51,000 under
d. P51,000 over
50. Which statement is correct regarding audit of investment in equity instruments?
a. Audited financial statements of the investee company provides the best form of evidence pertaining to
the annual valuation of an investment in which the independent auditor’s client owns a 10% voting
interest.
b. If a client has a large and active investment portfolio that is kept in a bank safe-deposit box and the
auditor is unable to count the securities at the end of the reporting period, the auditor most likely will
request the bank to confirm to the auditor the contents of the safe deposit box at the end of the reporting
period.
c. An audit procedure that provides evidence about proper valuation of equity instruments classified as FA
at FVTPL is confirmation of securities held by broker.
d. To determine whether securities are authentic is not one of the auditor’s primary objectives in an audit
of trading securities.
PROBLEM NO. 4
On Jan. 2, 2021, the Young-seo, Inc. issued P4,000,000 of 8% convertible bonds at par. The bonds will mature on
Jan. 1, 2025 and interest is payable annually every Jan. 1. The bond contract entitles the bondholders to receive
6, P100 par value, ordinary shares in exchange for each P1,000 bond. On the date of issue, the prevailing market
interest rate for similar debt without the conversion option is 10%.
On Dec. 31, 2022, the holders of the bonds with total face value of P2,000,000 exercised their conversion
privilege. In addition, the company reacquired at 110, bonds with a face value of P1,000,000.
QUESTIONS:
Based on the given information and the result of your audit, answer the following:
51. How much of the proceeds from the issuance of convertible bonds should be allocated to equity?
a. Nil
c. P 443,328
b. P253,632
d. P1,268,000
52. How much is the carrying amount of the bonds payable as of Dec. 31, 2021?
a. P2,778,800
c. P3,801,005
b. P3,592,340
d. P4,000,000
53. How much is the interest expense for the year 2022?
a. P277,880
c. P359,234
b. P320,000
d. P380,101
54. The conversion of the bonds on Dec. 31, 2022 will increase share premium by
a. Nil
c. P730,553
b. P615,786
d. P800,000
55. How much is the loss on bond reacquisition on Dec. 31, 2022?
a. Nil
c. P134,724
b. P100,000
d. P192,106
Page 9 of 14
PROBLEM NO. 5
Seong-hun Corp., organized on June 1, 2021, was authorized to issue shares as follows:
•
•
9% 800,000, P100 par, convertible preference shares
2,500,000, P2.50 par value, ordinary shares
During the remainder of the fiscal year ended May 31, 2022, the following transactions were completed in the
order given:
1) 300,000 preference shares were subscribed for at P105, and 900,000 ordinary shares were subscribed for at
P26. Both subscriptions were payable 30% upon subscription, the balance in one payment.
2) The second subscription payment was received, except one subscriber for 60,000 ordinary shares defaulted
on payment. The full amount paid by this subscriber was returned, and all of the fully paid shares was issued.
3) 150,000 ordinary shares were reacquired by purchase at P28.
4) Each preference share was converted into four ordinary shares.
5) The treasury shares were exchanged for machinery with a fair value of P4,300,000.
6) There was a 2-for-1 share split, and the par value of the new ordinary shares is P1.25.
7) Profit was P830,000.
QUESTIONS:
Based on the given information and the result of your audit, determine the following as of May 31, 2022:
56. Share capital - Ordinary shares
a. P2,550,000
b. P5,100,000
c. P2,100,000
d. P4,200,000
57. Total share premium
a. P50,890,000
b. P48,340,000
c. P48,808,000
d. P48,240,000
58. Total contributed capital
a. P53,908,000
b. P53,440,000
c. P55,990,000
d. P53,340,000
59. Total equity
a. P54,270,000
b. P56,820,000
c. P54,738,000
d. P54,170,000
60. When a client company does not maintain its own stock records, the auditor most likely will
a. Inspect the stock book at year-end and accounting for all certificate numbers.
b. Review of the corporate minutes for information as to shares outstanding.
c. Confirm the number of shares outstanding at year-end with the appropriate state official.
d. Obtain written confirmation from the transfer agent and registrar concerning the number of shares issued
and outstanding.
Page 10 of 14
PROBLEM NO. 6
The following trial balance relates to MIN-WOO Corporation at Mar. 31, 2022:
Closing inventories - Mar. 31, 2022 (note (i))
Land and building –at valuation (note (iii))
Plant and equipment - cost (note (iii))
Accumulated depreciation, Apr. 1, 2021 - plant and equipment
Investment property – valuation Apr. 1, 2021 (note (iii))
Trade receivables
Cash in bank
Trade payables
Ordinary shares of P0.25 each
10% Redeemable preference shares of P1 each
Revaluation reserve (note (iii))
Retained earnings – Apr. 1, 2021
Profit or loss summary
P'000
Debit
18,900
113,400
64,800
P'000
Credit
30,240
28,800
38,700
.
264,600
1,620
21,240
36,000
18,000
37,800
31,500
88,200
264,600
The following notes are relevant:
(i)
At Mar. 31, 2022, an inventory list based on a physical count had a total cost of P18.9 million. Some
damaged goods that had cost P 1.44 million were included in these. The realizable value of these goods is
expected to be P 1.71 million, provided a remedial work costing P0.81 million is done before they could be
sold.
(ii)
Included in the computation of profit or loss are finance costs consisting of interest on overdraft, the full
year's preference dividend and an ordinary dividend of P0.04 per share that was paid in Sept. 2021.
(iii)
Non-current assets:
Land and building
A professional valuer submitted a report on Apr. 1, 2021, revaluing the land at P27 million and building at
P86.4 million. The directors decided to incorporate these values in the accounts. On that date the land and
building had a carrying value of P75.6 million and the building had a remaining life of 15 years.
Charge depreciation on a straight-line basis. The entity does not make a transfer to retained earnings in
respect of excess depreciation.
Plant
All plant is depreciated at 12.5% on the reducing balance basis.
Investment property
On Mar. 31, 2022, the investment property was revalued at P24.3 million. The entity uses the fair value
model.
Page 11 of 14
QUESTIONS:
Based on the given information and the result of your audit, answer the following: (Ignore income taxes)
61. The adjusted profit or loss for the year ended Mar. 31, 2022 is
a. P73,080,000
c. P79,380,000
b. P78,840,000
d. P80,640,000
62. The comprehensive income for the year ended Mar. 31, 2022 is
a. P 79,380,000
c. P117,180,000
b. P116,640,000
d. P118,440,000
63. The total assets as of Mar. 31, 2022 is
a. P217,620,000
c. P219,240,000
b. P218,160,000
d. P219,780,000
64. The total liabilities as of Mar. 31, 2022 is
a. P21,240,000
c. P39,240,000
b. P22,860,000
d. P40,860,000
65. The retained earnings balance as of Mar. 31, 2022 is
a. P 98,820,000
c. P105,120,000
b. P104,580,000
d. P107,100,000
PROBLEM NO. 7
Yu-ra Corporation was incorporated on Dec. 1, 2021, and began operations one week later. Before closing the
books for the fiscal year ended Nov. 30, 2022, the controller prepared the following financial statements:
Yu-ra Corporation
Statement of Financial Position
November 30, 2022
Assets
Current assets:
Cash
Marketable securities, at cost
Accounts receivable
Allowance for doubtful accounts
Inventories
Prepaid insurance
Total current assets
Property, plant and equipment
Less accumulated depreciation
Property, plant and equipment, net
Research and development costs
Total assets
Liabilities and Shareholders' equity
Current liabilities:
Accounts payable and accrued
expenses
Income taxes payable
Total current liabilities
Shareholders' equity:
Share capital, P10 par value
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P 150,000
60,000
450,000
( 59,000)
430,000
__15,000
1,046,000
426,000
( 40,000)
386,000
120,000
P1,552,000
P 592,000
224,000
816,000
400,000
Retained earnings
Total shareholders' equity
Total liabilities and shareholders'
equity
336,000
736,000
P1,552,000
Yu-ra Corporation
Statement of Income
For the Fiscal Year Ended November 30, 2022
Net sales
P2,950,000
Operating expenses:
Cost of sales
Selling and administrative
Depreciation
Research and development
Income before income taxes
Provision for income taxes
Net income
1,670,000
650,000
40,000
30,000
2,390,000
560,000
224 000
P 336,000
Yu-ra is in the process of negotiating a loan for expansion purposes, and the bank has requested audited
financial statements. During the course of the audit, the following additional information was obtained:
a. The investment portfolio consists of short-term investments in marketable equity securities with a total fair
value of P55,000 as of Nov. 30, 2022.
b. Based on an aging of the accounts receivable as of Nov. 30, 2022, it was estimated that P36,000 of the
receivables will be uncollectible.
c. Inventories at Nov. 30, 2022 did not include work in process inventory costing P12,000, sent to an outside
processor on Nov. 29, 2022.
d. A P3,000 insurance premium paid on Nov. 30, 2022 on a policy expiring one year later was charged to
insurance expense.
e. On June 1, 2022, a production machine purchased for P24,000 was charged to repairs and maintenance. Yura depreciates machines of this type on the straight-line method over a five-year life with no salvage value,
for financial and tax purposes.
f.
Research and development costs of P150,000 were incurred the development of a patent, which Yu-ra
expects to be granted during the fiscal year ending Nov. 30, 2023. Yu-ra initiated a five-year amortization of
the P150,000 total cost during the fiscal year ended Nov. 30, 2022.
g. During Dec. 2022, a competitor company filed suit against Yu-ra for patent infringement claiming P200,000
damages. Yu-ra's legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of
the court's award to the plaintiff is P72,500.
h. The 40% effective tax rate was determined to be appropriate for calculating the provision for income taxes
for the fiscal year ended Nov. 30, 2022. Ignore computation of the deferred portion of income taxes.
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QUESTIONS:
Based on the given information and the result of your audit, determine the following as of and for the fiscal period
ended Nov. 30, 2022:
66. Net income
a. P235,260
b. P239,760
c. P253,260
d. P283,260
67. Current assets
a. P1,061,000
b. P1,073,000
c. P1,079,000
d. P1,084,000
68. Total assets
a. P1,484,200
b. P1,486,600
c. P1,489,200
d. P1,491,600
69. Total liabilities
a. P783,340
b. P805,840
c. P833,340
d. P855,840
70. Total equity
a. P635,260
b. P639,760
c. P653,260
d. P683,260
End of Examination
(Pleases ignore the extra answer options in the answer sheet after number 70)
Thank you for participating in
Team PRTC Nationwide Online Open Final Pre-Board Examination for May 2022 LECPA!
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