ACT1204 – Auditing and Assurance: Concepts and Application 1

Final Exam

Problem 1
Aquevido Co. Acquired a new machine. Details of the acquisition are as follows:
Cash paid for machine including VAT of Php60,000 560,000
Royalty payment base on units produced 19,000
Cost of transporting machine 15,000
Cost of installation by expert fitter 40,000
Labor of testing machine 20,000
Materials used and damaged as a result of testing the machine 10,000
Repair cost of new machine damaged in the process of installation 12,000
Cost of training for personnel who will use the machine 25,000
Cost of safety rails and platforms surrounding machine 50,000
Cost of water device to keep machine cool 70,000
Cost of adjustment to machine to make it operate more efficiently 57,000
Estimated dismantling cost to be incurred as required by contract 65,000
Cost of removing old machine 10,000
Loss on premature retirement – old machine 120,000
Gratuity paid to operator of old machine who was laid off 20,000
1. How much is the cost of the new machine?

Problem 2
On March 1, 2024, Bartolome Co. acquired land and building by paying Php8,000,000 and assuming a mortgage
of Php1,000,000, The building will be used by Bartolome Co, as its head office.
Draining cost and filling the land 35,000
Cost of option of the acquired properties 20,000
Escrow fees on the properties acquired 11,000
Broker’s fee on the properties acquired 10,000
Cost of relocating and reconstructing the property belonging to
others in order to acquire the properties 23,000
Registration fees and transfer of title 13,000
Legal fees for contract to purchase land 11,000
Cost of windows broken by vandals 22,000
Cost of grading and leveling the land 8,000
Title insurance 15,000
New fence surrounding the property 40,000
Case 1: Assume that on the date of acquisition, the land and building have fair values of Php9,000,000 and
Php3,000,000, respectively.
2. How much is the cost of Land?
3. How much is the cost of Old Building?

Case 2: Assume that on the date of acquisition, the old building has a minimal fair value
4. How much is the cost of Land?
5. How much is the cost of Old Building?

Problem 3
On January 1, 2024, Bautista Company received a grant of Php15,000,000 from the Local Government of Makati
in order to defray safety and environmental costs within the are where the enterprise is located. The safety
environmental costs are expected to be incurred over three years, respectively, Php2,000,000, Php3,000,000,
and Php5,000,000. The entity used gross method in recognizing governmental grant.

6. How much income from the governmental grant should be recognized in 2024?
7. How much income from the governmental grant should be recognized in 2025?
8. How much income from the governmental grant should be recognized in 2026?
9. Assuming the entity used net method in recognizing income from government grant, how much income from
the governmental grant should be recognized in 2024?

Problem 4
Your audit of Dean Corporation for the year 2023 disclosed the following property dispositions:
Cost Acc. Dep Proceeds Fair value
Land P4,800,000 3,720,000 3,720,000
Building 1,800,000 288,000 -
Warehouse 8,400,000 1,320,000 8,880,000 8,880,000
Machine 960,000 384,000 108,000 864,000
Delivery Truck 1,200,000 570,000 564,000 564,000

Land
A condemnation award was received as consideration for the forced sale of the company’s land and building,
which stood in the path of a new highway.

Building
Land and building were purchased at a total cost of P6,000,000 of which 30% was allocated to the building on
the corporate books. The real estate was acquired with the intention of demolishing the building right away. Cash
proceeds received represent the net proceeds from demolition of building.

Warehouse
The warehouse was destroyed by fire. The insurance proceeds and other funds were used to purchase a
replacement warehouse at a cost of P7,200,000.

Machine
The machine was exchanged for a machine having a fair value of P756,000 and cash of P108,000 was received.

Delivery Truck
The delivery truck was sold to a used car dealer.

QUESTIONS:
Based on the given information and the result of your audit, compute the gain or loss to be recognized for each of
the following dispositions:
10. Land
a. P0 c. P3,720,000 gain
b. P1,080,000 loss d. P4,800,000 loss
11. Building
a. P0 c. P1,368,000 loss
b. P432,000 gain d. P2,232,000 loss
12. Warehouse
a. P0 c. P1,800,000 gain
b. P480,000 gain d. P5,400,000 loss

13. Machine
a. P0 c. P36,000 gain
b. P27,000 gain d. P288,000 gain
14. Delivery Truck
a. P66,000 gain c. P636,000 gain
b. P66,000 loss d. P636,000 loss

Problem 5
 Deniega Company, a manufacturer of steel products, began operation on October 1, 2021. The accounting
department of Deniega has started the fixed-asset and depreciation schedule presented below.
DENIEGA CORPORATION
Fixed Asset and Depreciation Schedule
For Fiscal Years Ended, September 30, 2022, and September 30, 2023

Depreciation
Expense
year Ended
Sept. 30
Assets Acq. Date Cost Salvage Dep. Method Life 2022 2023
Land A 10/1/21 ? N/A N/A N/A N/A N/A
Bldg. A 10/1/21 ? P320,000 Straight-line ? P418,800 ?
Land B 10/1/21 ? N/A N/A N/A N/A N/A
Bldg. B Under ? - Straight-line 30 - ?
Construction
Donated Equip. 10/2/21 ? 50,000 200% declining 10 ? ?
balance
Mach. A 10/2/21 ? 48,000 Sum-of-the-years- 8 ? ?
digit method
Mach B. 10/1/22 ? - Straight-line 20 - ?

You have been asked to assist in completing this schedule. In addition, in ascertaining that the data already on
the schedule are correct, you have obtained the following information from the Company’s records and
personnel:
a. Land A and Building A were acquired from a predecessor corporation. Deniega paid P8,450,750 for the
land and building together. At the time of acquisition, the land had an appraised value of P1,184,488,
and the building had an appraised value of P7,215,512.
b. Land V was acquired on October 2, 2021, in exchange for 45,000 ordinary shares of Deniega. At the
date of acquisition, the share had par value of P10 per share and a fair value of P50 per share. During
October 2021, Deneiga paid P128,000 to demolish an existing building on this land so it could construct
new building (Building B).
c. Construction of Building B on the newly acquired land began on October 1, 2022. By September 30,
2023, Deniega has paid P2,560,000 of the estimated total construction costs of P3,600,000. It is
estimated that the building will be completed and occupied by July 2024.
d. Certain equipment was donated to the corporation by a local university. An independent appraisal of the
equipment when donated placed the fair market value of P720,000 and the salvage value at P50,000.
e. Machinery A’s total cost of P1,575,000 includes installation expense of P12,500 and normal repairs and
maintenance of P124,750. Salvage value is estimated at P50,000. Machinery A was sold on February 1,
2023.
f. On October 1, 2022, Machinery B was acquired with a downpayment of P137,760 and the remaining
payments to be made in 11 annual installments of P144,000 each beginning October 1, 2022. The
prevailing interest rate was 15%.

QUESTIONS:
Based on the given information and the result of your audit, answer the following:
15. The cost of building A
a. P0 c. P1,191,644
b. P7,259,106 d. P8,450,750
16. The cost of Land B
a. P2,378,000 c. P450,000
b. P578,000 d. P2,250,000
17. The cost of Machine B
 a. P1,110,240 c. P1,004,476
b. P1,165,776 d. P1,248,000
18. The total depreciation expense for the year ended September 30, 2023 is
a. P674,990 c. P797,001
b. P658,890 d. P792,888

Problem 6
Dinio Company began construction of its administration building at an estimated cost of P2,000,000 on January
1, 2024. The building was completed on December 31, 2024. The company had the following loans outstanding
during the year 2024:
Rate Types Principal
10% General Loan 500,000
12% Loans Payable 1,500,000

The following expenditures were made during 2024:

Date Amount
January 1, 2024 300,000
July 1, 2024 700,000
November 1, 2024 600,000

19. What is the cost of the building on December 31, 2024?

20. How much is the capitalized cost of interest on December 31, 2024?
21. What is the capitalization rate?

Problem 7
Date Item Debit Credit
2024
Jan. 1 Balance 1,200,000
June 30. Purchased four new machines 720,000
Installation cost of new machines 32,000
Sept. 30 Proceeds from sale of old machines cost P100,000,
accumulated depreciation P70,000 44,000
Oct. 31 Repair of machinery 50,000
Nov. 1 Cash paid for the exchange of old machine cost
P150,000, accumulated depreciation P40,000, fair
value of asset given P200,000 (exchange with
commercial substance) 100,000
Dec. 1 Cash paid for trade-in of old machine cost P60,000,
accumulated depreciation P24,000. Cash price of
new machine, P180,000 150,000
Dec. 31 Balance 2,208,000
2,252,000 2,252,000
The depreciation rate is 10% annually, straight-line method.

QUESTIONS:
Based on the above data and the result of your audit, answer the following:
22. The gain or loss on sale of old machine on September 30
23. The gain or loss on exchange on November 1
24. The gain or loss on trade in on December 1
25. The adjusted balance of machinery account
26. The depreciation expense for 2024.
27. Assuming that the company’s policy is to provide full year’s depreciation in the years of acquisition and none
in the year of disposition, the depreciation expense in 2024 would be?
28. Assume instead that the company’s policy is no depreciation in the year of acquisition and full in the year of
disposition, the depreciation expense in 2024 would be?

Problem 8
To substantiate the existence of the accounts receivable balances as of December 31, 2025 of Gomez Company,
you sent confirmation requests to customers. Below is a summary of the confirmation replies together with the
exceptions and audit findings. Gross profit rate on sales is 20%. The company is under the perpetual inventory
method.
Name of Balance per Books Comments from Customers Audit Findings
Customer
DD P150,000 P90,000 was returned on Returned goods were
December 30, 2025. Correct received on December
balance is P60,000 31, 2025.
EE P30,000 Your CM representing price The CM was taken up by
adjustment dated December Gomez Company in
28, 2025 cancels this. 2026.
FF P144,000 You have overpriced us by The complaint is valid.
P150. Correct price should
be P300.
GG P112,500 We have received t he Term is shipping point.
goods only on January 6, Shipped in 2025.
2026
HH P135,000 Balance was offset by our Gomez Company credit
December shipment of your accounts payable for
raw materials P135,000 to record
purchases. HH is a
supplier.
29. If the necessary audit adjustments is made regarding the case of DD, the net income will
a. Increase by P18,000 c. Decrease by P18,000
b. Increase by P90,000 d. Decrease by P90,000
30. The effect on 2025 net income of Gomez Company of its failure to record the CM involving the transaction
with EE:
a. P6,000 under c. P6,000 over
b. P30,000 under d. P30,000 over
31. The overstatement of receivable from FF is
a. P48,000 c. P96,000
b. P72,000 d. P24,000
32. The accounts receivable from GG is
a. P112,500 under c. P225,000 under
b. Correctly stated d. P112,500 over
33. The audit adjustment to correct the receivable from HH is
a. Purchases 135,000
 Accounts Receivable 135,000

b. Accounts Payable 135,000

Purchases 135,000

c. Accounts Receivable 135,000

Accounts Payable 135,000

d. Accounts Payable 135,000

Accounts Receivable 135,000

Problem 9
In the course of your audit of Kilap-Kilap Company’s Receivables account as of December 31, 2025, you found
out that the account comprised of the following items:
Trade accounts receivable P1,550,000
Trade accounts receivable, assigned (proceeds from assignment
amounted to P650,000) 750,000
Trade accounts receivable, factored (proceeds from factoring done
on a without-recourse basis amounted to P250,000) 300,000
12% trade notes receivable 200,000
20% trade notes receivable, discounted at 40% upon receipt of the
6-month note on a without recourse basis 300,000
Trade receivable rendered worthless 50,000
Installments receivable, normally due 1 year to 2 years 600,000
Customers’ accounts reporting credit balances arising from sales
returns (60,000)
Advance payments for purchase of merchandise 300,000
Customers’ accounts reporting credit balance arising from advance
payments. (40,000)
Cash advances to subsidiary 800,000
Claim from insurance company 30,000
Subscription receivable due in 60 days 600,000
Accrued interest receivable 20,000
Deposit on contract bids 500,000
Advances to stockholders (collectible in 2028) 2,000,000
34. How much is the total trade receivables?
a. P3,000,000 c. P3,100,000
b. P2,950,000 d. P3,650,000
35. How much is the amount to be presented as “trade and other receivables” under the current asset section?
a. P7,350,000 c. P4,850,000
b. P5,350,000 d. P4,050,000
36. How much is the loss from receivable financing that should be recognized in the statement of profit or loss?
a. P50,000 c. P86,000
b. P36,000 d. P105,000

Problem 10
On January 1, 2022, Orillosa Company received a P16,000,000 note receivable. The principal is due on
December 31, 2026 while interest at 10% is due annually every December 31. Orillosa Company was able to
collect the required payments during 2022 and 2023. However, the borrower began to experience financial
difficulties in 2024, requiring Orillosa to reassess the collectability of the note. Interest was accrued in 2024. On
December 31, 2024, Orillosa Company determined that the note is already in default and projects future cash
flows as follows:
Expected date of collection Amount of cash flow
December 31, 2025 P1,600,000
 December 31, 2026 P3,200,000
December 31, 2027 P4,800,000
Case 1: The loan is issued at P16,000,000
37. How much is the loan impairment in 2024?
a. P7,705,280 c. P9,894,720
b. P2,189,440 d. P8,294,720
38. How much is the interest income for 2025?
a. Nil c. P687,581
b. P1,600,000 d. P770,528
39. How much is the carrying amount of the note as of December 31, 2025?
a. P8,000,000 c. P4,363,389
b. P4,800,000 d. P6,875,808
Case 2: Assume instead that on January 1, 2022, the note was issued at P14,846,080 to yield 12% and the
interest on December 31, 2024 was not accrued.
40. How much is the loan impairment in 2024?
a. P7,834,603 c. P9,353,354
b. P9,434,603 d. P7,525,643

Problem 11
Somera Company uses a perpetual inventory system and uses the first-in, first-out method. Somera’s inventory
control account balance as of June 30, 2025 was P442,040. A physical count conducted on that day found
inventory on hand worth P440,400. Net realizable value for each inventory held for sale exceeded cost. An
investigation of the discrepancy disclosed the following:
I. Goods costing P2,400 were purchased on credit on June 27, 2025 on FOB Shipping point terms. The
goods were shipped on June 28, 2025 but were still in transit and were not included in the physical
count. The purchase invoice was received and processed on June 30, 2025.
II. Damaged inventory items valued at P5,300 were discovered during the physical count. These items
were still recorded on June 30, 2025 but were omitted from the physical count records pending their
write-off.
III. On June 30, 2025, Somera sold goods costing P12,600 on credit (FOB shipping point) terms for
P19,200. The goods were dispatched from the warehouse on June 30, 2025 but the sales invoice had
not been processed at that date.
IV. Goods costing P5,460 were purchased on credit (FOB destination) on June 28, 2025. The goods were
received on June 29, 2025 and included in the physical count. The purchase invoice was received on
July 2, 2025.
V. Goods costing P4,800 were sold for P7,800 on June 28, 2025 on FOB destination terms. The goods
were still in transit on June 30, 2025. The sales invoice was processed and recorded on June 29, 2025.
VI. Goods worth P13,200 were held on consignment and were included in the physical count.
41. How much is the adjusted inventory balance on June 30, 2025?
a. P445,000 c. P434,400
b. P421,200 d. P424,800
42. What adjustment should be made to sales for the year ended June 30, 2025?
a. Decrease of P7,800 c. Net decrease of P11,400
b. Net increase of P11,400 d. Increase of P19,200
43. The accounts payable as of June 30, 2025 should be
a. Increase by P160 c. Increased by P5,460
b. Decreased by P5,300 d. Decreased by P5,460
44. The unallocated difference between the perpetual balance and the physical count amounts to
a. P1,640 c. P0
b. P160 d. P5,300
45. The entry to correct the error described in item I is:
a. Purchases 2,400
Accounts Payable 2,400

b. Inventory 2,400
Accounts Payable 2,400

c. Inventory 2,400
Cost of Sales 2,400

d. No adjusting entry is necessary

Problem 12
Use the following information for the next five questions.
You were engaged to perform an audit of the accounts of the Christine Corporation for the year ended December
31, 2020, and you observed the taking of the physical inventory of the company on December 30, 2020. Only
merchandise shipped by the company to customers up to and including December 30, 2020 have been
eliminated from inventory. The inventory as determined by physical inventory count has been recorded on the
books by the company’s controller. No perpetual inventory records are maintained. All sales are made on an
FOB shipping point basis. You are to assume that all purchase invoices have been correctly recorded. The
inventory was recorded through the cost of sales method.

The following lists of sales invoices are entered in the sales books for the month of December 2020 and January
2021, respectively.

DECEMBER 2020
Sales Sales
invoice invoice
amount date Cost Date shipped
a) P150,000 Dec. 21 P100,000 Dec. 31, 2020
b) 100,000 Dec. 31 40,000 Nov. 03, 2020
c) 50,000 Dec. 29 30,000 Dec. 30, 2020
d) 200,000 Dec. 31 120,000 Jan. 03, 2021
e) 500,000 Dec. 30 280,000 Dec. 29, 2020
(shipped to
consignee)

JANUARY 2021
f) P300,000 Dec. 31 P200,000 Dec. 30, 2020
g) 200,000 Jan. 02 115,000 Jan. 02, 2021
h) 600,000 Jan. 03 475,000 Dec. 31, 2020

QUESTIONS:
Based on the above and the result of your audit, answer the following:
46. Sales for the year ended December 31, 2020 is misstated by
 a. P100,000 over c. P200,000 over
b. P100,000 under d. P200,000 under
47. Profit for the year ended December 31, 2020 is misstated by
a. P25,000 under c. P195,000 over
b. P95,000 over d. P380,000 under
48. Inventory as of December 31, 2020 is misstated by
a. P175,000 over c. P295,000 over
b. P180,000 under d. P455,000 over
49. Working capital as of December 31, 2020 is misstated by
a. P25,000 under c. P195,000 over
b. P95,000 over d. P380,000 under

Problem 13
Your firm has been engaged to examine the financial statements of the Dela Vega Company for the year ended
December 31, 2024. In connection with this audit, you have been assigned to audit the CASH account. You
noted that there are two Cash in Bank account, one in BDO and the other in ChinaBank.

Data relating to BDO Account No. 143:

On December 31, 2024, the bookkeeper prepared the following bank reconciliation on this bank account:
CASH
Bank Reconciliation
December 2024
Balance per bank statement Php 1,000,000
Add (Deduct): Reconciling items
Deposit in transit (Note 1) 100,000
Outstanding Check (Note 2) ( 75,000)
Note charged by the bank (Note 3) 74,400
Balance per general ledger Php 1,099,400

Audit Notes:
1. Includes a customer’s check in the amount of P20,000 (dated April 25, 2024), which is not yet deposited
because it has been misplaced.
2. Includes two checks totaling P15,000 which were among the items counted during the cash counted
conducted early morning of January 2, 2025.
3. This is the maturity value of a two-year note maturing on December 31, 2024. The note bears a 12%
interest. Interest for the year ended December 31, 2024 was properly accrued.

Data relating to Chinabank Account No. 144

On November 30, 2024, the bookkeeper prepared the following bank reconciliation on this bank account:

Cash account balance P1,980,000

Add: Outstanding Check Php 250,000
Unrecorded Collections 90,000 40,000
Balance P2,320,000
 Less: Bank Service Charge Php 10,000
Deposit in transit 90,000
Check erroneously charged by
Bank against company’s account 20,000 120,000
Bank statement balance P2,200,000

Additional information:
 The company’s book for the month of December showed the following entries:
November 30 balance Php 1,980,000
Credits 3,500,000
Debits 1,420,000

 The bank statement showed the following on December 31:

November 30 balance Php 2,200,000
Credits 1,000,000
Debits 2,000,000

 The December bank debits include the following:

Debit memo for service charge Php 20,000
Debit memo for customer’s NSF check 100,000

 The company recorded as cash receipt a customer’s note of P200,000 placed with the bank for
collection on December 31. The note was not collected until the subsequent month.
QUESTIONS:
Based on the above data and the result of your audit, compute the following:
50. Adjusted balance of the cash in bank (Account No. 143)
a. P1,020,000 c. P940,000
b. P1,080,000 d. P1,094,400
51. Total outstanding check as of December 31, 2024.
a. P1,920,000 c. P1,660,000
b. P1,860,000 d. P1,720,000
52. Adjusted receipts for December of the Cash in bank (Account No. 144)
a. P2,060,000 c. P1,150,000
b. P1,130,000 d. P1,330,000
53. Adjusted disbursements for December of the Cash in bank (Account No. 144)
a. P2,230,000 c. P1,750,000
b. P3,610,000 d. P3,510,000
54. Total adjusted cash in bank balance December 31, 2024
a. P700,000 c. P600,000
b. P1,020,000 d. P820,400

Problem 14
Data concerning the cash records of Richelle Company for the months of September and October of the current
year follow:
a) Unadjusted book balance on September 30 amounted to P2,258,000
b) Total receipts per book in October, P1,400,000
c) Total disbursements per book in October, P2,400,000
d) Unadjusted bank balance on September 30 amounted to P2,100,000
 e) Total credits per bank in October amounted to P1,200,000
f) Total debits per bank in October amounted to P2,500,000
g) NSF checks on September 30 amounted to P60,000 while on October 31 amounted to P40,000.
h) Collections of accounts receivable not recorded by the company on September 30, P30,000 and
P50,000 on October 31.
i) Erroneous bank charge on September 30, P10,000 and P18,000 on October 31
j) Erroneous bank credit on September 30, P7,000 and P9,000 on October 31
k) Understatement of check in payment of rent payable on September 30, P90,000 and P120,000 on
October 31
l) Deposit in transit on September 30, P130,000
m) Outstanding checks on October 31, P30,000
REQUIRED: Based on the above data, answer the following questions:
55. How much is the deposit in transit for October 31?
56. How much is the outstanding checks for September 30?
57. How much is the adjusted cash in bank balance for September 30?
58. How much is the adjusted cash receipts during October?
59. How much is the adjusted cash in bank balance for October 31?
60. How much is the cash shortage/overage?

Problem 15
Use the following information for the next five questions.

In connection with your audit of Rayn Corp. for the year ended Dec. 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:

Goods costing P180,000 were received from a vendor on Jan. 3, 2024. The related invoice was received and
recorded on Dec. 30, 2023. The goods were shipped on Dec. 31, 2023, terms FOB shipping point.

Goods costing P200,000, sold for P300,000, were shipped on Dec. 31, 2023, and were received by the customer
on Jan. 2, 2024. The terms of the invoice were FOB shipping point. The sale was recorded in 2024.

The invoice for goods costing P150,000 was received and recorded as a purchase on Dec. 31, 2023. The related
goods, shipped FOB destination, were received on Jan. 2, 2024.

A P600,000 shipment of goods to a customer on Dec. 30, 2023, terms FOB destination, was recorded as a sale
upon shipment. The goods, costing P400,000, were received by the customer on Jan. 6, 2024.

Goods costing P250,000 were received and recorded as a purchase on Dec. 31, 2023. These goods are held on
consignment from a vendor.

Goods costing P160,000, recorded as a sale upon shipment for P240,000, were shipped on Dec. 31, 2023.
These goods are out on consignment with the customer and sold to a third party on Jan. 5, 2024.

QUESTIONS:
Based on the given information and the result of your audit, answer the following:
61. The inventory as of Dec. 31, 2023 is understated by
a. P140,000 c. P490,000
b. P330,000 d. P580,000
62. The cost of sales for the year ended Dec. 31, 2023 is overstated by
a. P290,000 c. P890,000
b. P730,000 d. P980,000
63. The profit for the year ended Dec. 31, 2023 is misstated by
a. P 10,000 c. P350,000
b. P190,000 d. P430,000
64. The working capital as of Dec. 31, 2023 is misstated by
a. P 10,000 c. P350,000
b. P190,000 d. P430,000

Problem 16
During 2023, Eichsel Company purchased property with ore deposit for P10,000,000. The property had a
residual value of P1,000,000. However, Eichsel is legally required to restore the property to its original condition
at a discounted amount of P500,000. In 2023, Eichsel spent P800,000 in development cost. In 2024, an amount
of P900,000 was spent for additional development on the mine.

The tonnage mined and estimated remaining tons for years 2023-2024 are as follows:
Year Tons extracted Estimated Tons Remaining
2023 500,000 1,500,000
2024 800,000 1,700,000

REQUIRED:
65. How much is the depletion expense for 2023?
66. How much is the depletion expense for 2024?

Problem 17
Shieela Company provides the following balances at the end of 2024:
Mineral deposit, at cost Php 10,000,000
Accumulated depletion 4,000,000
Ordinary Share Capital 3,000,000
Share Premium 2,500,000
Capital Liquidated 850,000
Accumulated profits – unappropriated 9,000,000
Accumulated profits appropriated for contingencies 1,000,000
Inventory of resource deposit (150,000 units) 1,500,000
Depletion rate per unit 4

67. How much is the maximum amount of dividends to that can be declared by Shieela?
a. P9,000,000 c. P11,550,000
b. P10,650,000 d. P13,000,000

Problem 18
Hans Enterprises has been in business for several years. A trial balance prepared by the company’s staff
accountant for December 31, 2021 is presented below:
Hans Enterprises
Unadjusted Trial Balance
December 31, 2021
Cash P20,000
Accounts Receivable 50,000
Inventory 120,000
Equipment 800,000
Accumulated Depreciation – Equipment P250,000
Buildings 1,200,000
Accumulated Depreciation – Buildings 400,000
 Patents 550,000
Franchise agreements 95,000
Intangible asset – software cost 1,160,000
Goodwill 345,000
Accounts Payable 12,000
Accrued Wages Payable 5,000
Accrued Taxes Payable 60,000
Bonds Payable 500,000
Premium on Bonds Payable 35,000
Preference Shares (P100 Par value) 100,000
Ordinary Shares (P25 par value) 1,100,000
Share Premium 220,000
Accumulated Profits (as of January 1) 1,458,000
Sales Revenue 900,000
Cost of Goods Sold 400,000
Selling and Administrative Expenses 300,000
P5,040,000 P5,040,000

Before 2021, Hans Enterprises prepared financial statements internally. The company has not been audited
because the ownership is held completely by on family and is not actively sold. As of 2021, however, in
anticipation of bank loans and possible public offering of common stock, the company needs audited financial
statements prepared in conformity with generally accepted accounting principles.

As a member of the team of independent auditors responsible for Hans Enterprises, you have been assigned the
intangible assets. You have observed that four intangible assets account appears on the unadjusted trial
balance. Additional investigation reveals the following:

Patents: All patents were purchased from another company when Hans Enterprises began operations on
January 2, 2014. These patents are being amortized over an expected useful life of 14 years. Improvements
made to equipment covered by the patent costing P75,000 was debited to the account in January 2018.
Amortization in 2018-2020 included amortization on the P75,000 for the remaining life of the relevant patent. It is
determined that the P75,000 should have been expensed in 2018. It is further determined on January 1, 2021,
that one of the patents has a remaining life of only 2 years. This patent was originally assigned a cost of
P210,000.

Franchise agreements: A franchise agreement was signed on January 1, 2021. A P50,000 fee was paid,
covering a 5-year period, at the end of which the company may renew the agreement by paying P50,000. A
decision on renewal has not been made as of December 31, 2021. The agreement calls for an annual payment
of 5% of its sales revenue. An entry debiting the account for P45,000 was made at the time of the cash payment
for 2021.

Software costs: During 2021, Hans Enterprises incurred costs to develop and produce a routine, low-risk
computer software product, as follows:
Completion of detailed program design P130,000
Costs incurred for coding and testing to establish technological
feasibility 100,000
Other coding costs after establishment of technological
feasibility 240,000
Other testing costs after establishment of technological
feasibility 200,000
Costs of producing master for training materials 150,000
Duplication of computer software and training materials from
product masters (1,000 units) 250,000
Packaging product (500 units) 90,000
Total P1,160,000
Goodwill: The Goodwill includes three items:
Legal expenses relative to incorporation. These were assigned
to the account in January 2014. P45,000
Excess of cost over assigned net asset values of an enterprise
acquired in early 2019, expected to have value for an indefinite
period. 200,000
Paid to an advertising consulting firm in early 2020 for a major
advertising effort expected to be beneficial for an indefinite
period. 100,000
No amortization has been taken on any amount in the Goodwill account:

QUESTIONS:
Based on the above and the result of your audit, answer the following:
68. Carrying amount of Patent, 12/31/2021
a. P388,929 c. P441,429
b. P445,000 d. P510,714
69. Carrying amount of Franchise agreement, 12/31/2021
a. P50,000 c. P76,000
b. P40,000 d. P95,000
70. Carrying amount of Goodwill, 12/31/2021
a. P345,000 c. P200,000
b. P300,000 d. Nil
71. Correct software cost in 2021
a. P1,100,000 c. P390,000
b. P680,000 d. P590,000
72. Total costs incurred in the software that should be charged to expense in 2021
a. P230,000 c. P470,000
b. P320,000 d. P670,000
73. Total amortization in 2021
a. P56,071 c. P108,571
b. P118,571 d. Nil

Problem 19
On January 1, 2021, Nicole showed land with carrying amount of P5,000,000 and building with cost of
P30,000,000 and accumulated depreciation of P9,000,000.

The land and building were revalued on same date and revealed the fair value of land at P7,500,000 and the
building at P35,000,000.

The original useful life of the building is 20 years and depreciation is computed on the straight line. The income
tax rate is 30%

REQUIRED:
Based on the above information, determine the following:
74. What is the revaluation surplus on January 1, 2021?
75. What is the deferred tax liability on December 31, 2021?

Problem 20
Use the following information for the next five questions.
Presented below is the Assets section of Kyle Corp.’s statement of financial position as of Dec. 31, 2022.
Cash and cash equivalents P2,100,000
Trade and other receivables 4,200,000
Inventories 5,300,000
Other current assets 500,000
Property, plant and equipment 7,910,000
Intangible assets 2,280,000
Other non-current assets 700,000
During the course of your audit, you noted the following.
Cash and cash equivalents
The following were included in Cash and cash equivalents:
 Credit card receipts representing sales on Dec. 31, 2022, P90,000.
 Cryptocurrencies, P360,000. These are not held for sale in the ordinary course of business nor for
investment purposes.
 Cash set aside for payment of income tax, P140,000.
 Cash surrender value of life insurance policy, P33,000.
 Investment in preference shares acquired on Dec. 28, 2022, P240,000. The shares are redeemable on Mar.
28, 2023.
 6-month time deposit, P100,000.
 Customer’s check for P65,000 dated Jan. 2, 2023, received on December 29, 2022.
 Customer’s NSF check, P20,000.
Inventories
The following were included in Inventories:
 Equipment held for sale in accordance with PFRS 5, at carrying amount, P52,000. Fair value less costs to
sell, P48,000.
 Goods held on consignment, P36,000.
 Goods out on consignment, P75,000.
 Goods in transit to customers (shipped FOB seller), P87,000. The related sales on account of P104,400
recorded in 2023.
 Goods in transit to customers (shipped FOB buyer), P73,000. The related sales on account of P87,600
recorded in 2023.
 Office supplies, P12,000.
Property, plant and equipment
This line item includes the following:
Head office building P2,020,000
Factory building 1,450,000
Store building 920,000
Building occupied by employees 870,000
Land held for a currently undetermined
future use 1,200,000
Delivery vehicles 830,000
Equipment for rental to others under
operating leases 240,000
Bearer plants 380,000
P7,910,000

 The entity uses the cost model for all items of property, plant and equipment.
 The employees pay rent at market rates.
 Fair value less costs to sell of bearer plants, P460,000.
Intangible assets
This line item includes the following:
Patents P350,000
 Trademarks 460,000
Costs of training employees 280,000
Research and development costs 880,000
Organization costs 310,000
P2,280,000

 The costs of training employees resulted in a team of skilled staff.

 The entity cannot distinguish the research phase from the development phase of its project to create an
intangible asset.

QUESTIONS:
Based on the given information and the result of your audit, determine the adjusted amount of the following as of
Dec. 31, 2022:
76. Cash and cash equivalents
a.P1,192,000 c. P1,532,000
b. P1,432,000 d. P1,552,000
77. Trade and other receivables
a. P4,304,400 c. P4,459,400
b. P4,389,400 d. P4,479,400
78. Inventories
a. P5,113,000 c. P5,127,000
b. P5,213,000 d. P5,473,000
79. Property, plant and equipment
a. P5,990,000 c. P6,470,000
b. P6,330,000 d. P6,710,000
80. Intangible assets
a. P 810,000 c. P1,170,000
b. P1,090,000 d. P1,680,000

Problem 21
Franchesca Corporation asked you to review its records and prepare corrected financial statements. The books
of accounts are in agreement with the following statement of financial position:
Franchesca Corporation
Statement of Financial Position
December 31, 2024
Assets
Cash P 40,000
Accounts receivable 80,000
Notes receivable 24,000
Inventories 200,000
Total assets P344,000

Liabilities and Owners’ Equity

Accounts payable P 16,000
Notes payable 32,000
Capital stock 80,000
Retained earnings 216,000
Total liabilities and owners’ equity P344,000

A review of the company’s books indicates that the following errors and omissions had not been corrected during
the applicable years:
 2021 2022 2023 2024
Ending inventory
- overstated P - P56,000 P64,000 P -
Ending inventory-
understated 48,000 - - 72,000
Prepaid expense 7,200 5,600 4,000 4,800
Unearned
income - 3,200 - 2,400
Accrued expense 1,600 600 800 400
Accrued income - 1,000 - 1,200

No dividends were declared during the years 2023 to 2026 and no adjustments were made to retained earnings.
The company’s books reported the following profit:
2021 P60,000 2023 P52,000
2022 44,000 2024 60,000

QUESTIONS:
Determine the adjusted amounts of the following: (Disregard tax implications)
81. Net income in 2021
a. P99,200 c. P113,600
b. P116,800 d. P17,600
82. Net income (loss) in 2022
a. (P62,800) c. (P59,600)
b. (P14,800) d. P145,200
83. Net income (loss) in 2023
a. P60,400 c. P44,400
b. P44,800 d. (P11,600)
84. Net income (loss) in 2024
a. (P76,000) c. P195,200
b. P194,400 d. P196,000
85. Retained earnings as of December 31, 2024
a. P281,600 c. P292,000
b. P291,200 d. P147,200

Problem 22
Christopher John Corporation, a nonpublic entity, was incorporated on December 1, 2023, and began operations
one week late closing the books for the fiscal year ended November 30, 2024, the controller prepared the
following financial statements:

Christopher John Corporation

Statement of Financial Position
November 30, 2024

Assets
Current assets:
Cash P 150,000
 Marketable securities , at cost 60,000
Accounts receivable 450,000
Allowance for doubtful accounts ( 59,000)
Inventories 430,000
Prepaid insurance __15,000
Total current assets 1,046,000
Property, plant and equipment 426,000
Less accumulated depreciation ( 40,000)
Property, plant and equipment, net 386,000
Research and development costs 120,000
Total assets P1,552,000

Liabilities and Shareholders' equity

Current liabilities:
Accounts payable and accrued expenses P 592,000
Income taxes payable 224,000
Total current liabilities 816,000
Shareholders' equity:
Share capital, P10 par value 400,000
Retained earnings 336,000
Total shareholders' equity 736,000
Total liabilities and shareholders' equity P1,552,000

Christopher John Corporation

Statement of Income
For the Fiscal Year Ended November 30, 2016

Net sales P2,950,000

Operating expenses:
Cost of sales 1,670,000
Selling and administrative 650,000
Depreciation 40,000
Research and development 30,000
2,390,000
Income before income taxes 560,000
Provision for income taxes 224 000
Net income P 336,000
Bryant 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
market valuation of P55,000 as of November 30, 2024.

b. Based on an aging of the accounts receivable as of November 30, 2024, it was estimated that P36,000 of
the receivables will be uncollectible.

c. Inventories at November 30, 2024 did not include work in process inventory costing P12,000, sent to an
outside processor on November 29, 2024.
d. A P3,000 insurance premium paid on November 30, 2024 on a policy expiring one year later was charged to
insurance expense.

e. Bryant adopted a pension plan on June 1, 2024 for eligible employees to be administered by a trustee.
Based upon actuarial computations, the first twelve months' normal pension was estimated at P45,000.

f. On June 1, 2024, a production machine purchased for P24,000 was charged to repairs and maintenance.
Bryant depreciates machines of this type on the straight-line method over a five-year life with no salvage
value, for financial and tax purposes.

g. Research and development costs of P150,000 were incurred the development of a patent, which Bryant
expects to be granted during the fiscal year ending November 30, 2025. Bryant initiated a five-year
amortization of the P150,000 total cost during the fiscal year ended November 30, 2024.

h. During December 2024, a competitor company filed suit against Bryant for patent infringement claiming
P200,000 damages. Bryant's legal counsel believes that an unfavorable outcome is probable. A reasonable
estimate of the court's award to the plaintiff is P50,000.

i. The 40% effective tax rate was determined to be appropriate for calculating the provision for income taxes
for the fiscal year ended November 30, 2024. Ignore computation of the deferred portion of income taxes.

QUESTIONS:
Based on the above and the result of your audit, determine the following as of and for the fiscal period ended
November 30, 2024:
86. Net income
a. P253,260 c. P235,260
b. P283,260 d. P239,760
87. Current assets
a. P1,084,000 c. P1,079,000
b. P1,061,000 d. P1,073,000
88. Total assets
a. P1,484,200 c. P1,489,200
b. P1,486,600 d. P1,491,600
89. Total liabilities
a. P833,340 c. P855,840
b. P783,340 d. P805,840
90. Total equity
a. P683,260 c. P639,760
b. P635,260 d. P653,260

Problem 23
The following list of accounts and their balances represents the unadjusted trial balance of YZA COMPANY at
December 31, 2025:
Cash P290,900
Equity investments (trading) 600,000
Accounts receivable 690,000
Allowance for doubtful accounts P 5,000
Inventory 547,200
Prepaid rent 360,000
Plant and equipment 1,600,000
Accumulated depreciation – Plant and equipment 147,400
Accounts payable 113,700
Bonds payable 900,000
Ordinary share capital 1,700,000
 Retained earnings 971,800
Sales 2,148,000
Cost of goods sold 1,544,000
Freight-out 110,000
Salaries and wages expense 320,000
Interest expense 20,400
Rental income 216,000
Miscellaneous expense 8,900
Insurance expense 110,500
P6,201,900 P6,201,900

Additional data:
1. The balance in the Insurance expense account contains the premium costs of three policies:
Policy 1, remaining cost of P25,500, 1-year term, taken out on May 1, 2024;
Policy 2, original cost of P72,000, 3-year term, taken out on October 1, 2025;
Policy 3, original cost of P13,000, 1-year term, taken out on January 1, 2025.
2. On September 30, 2025, Yza received P216,000 rent from its lessee for eighteen-month lease beginning
on that date.
3. The regular rate of depreciation is 10% per year. Acquisitions and retirements during a year are
depreciated at half this rate. There were no purchases during the year. On December 31, 2024, the
balance of the Plant and equipment account was P2,400,000.
4. On December 28, 2025, the bookkeeper incorrectly credited Sales for a receipt on account in the amount
of P100,000.
5. At December 31, 2025, salaries and wages accrued but unpaid were P4,200,000.
6. Yza estimates that 1% of sales will become uncollectible.
7. On August 1, 2025, Yza purchased, as a short-term investment, 600 P1,000, 7% bonds of Francisco Corp.
at par. The bonds mature on August 1, 2026. Interest payment dates are July 31 and January 31.
8. On April 30, 2025, Yza rented a warehouse for P30,000 per month, paying P360,000 in advance.

QUESTIONS:
91. What are the adjusted balances of the following accounts on December 31, 2025?
Prepaid insurance Insurance expense
A. P 6,000 P104,500
B. 0 110,500
C. 54,000 56,500
D. 66,000 44,500
92. What is the total depreciation expense for the year ended December 31, 2025?
A. P120,000 B. P240,000 C. P200,000 D. P160,000
93. What is the bad debt expense for the year ended December 31, 2025?
A. P15,480 B. P25,480 C. P21,480 D. P20,480
94. What amount of interest and rent income should be reported in the income statement for the year ended
December 31, 2025?
Interest income Rental income
A. P24,500 P 36,000
B. 17,500 180,000
C. 24,500 180,000
D. 17,500 36,000
95. What adjusting entry is necessary on December 31, 2025 for the Prepaid rent account?
A. Rent expense 270,000
Prepaid rent 270,000
B. Prepaid rent 270,000
 Prepaid rent 270,000
C. Prepaid rent 240,000
Rent expense 240,000
D. Rent expense 240,000
Prepaid rent 240,000

Problem 24
A depreciation schedule for semi-trucks of PATRICK COMPANY was requested by your auditor soon after
December 31, 2025, showing the additions, retirements, depreciation, and other data affecting the income of the
company in the 4-year period 2022 to 2025, inclusive.

The following data were ascertained.

Balance of Trucks account, Jan. 1, 2022
Truck No. 1 purchased Jan. 1, 2019, cost P180,000
Truck No. 2 purchased July 1, 2019, cost 220,000
Truck No. 3 purchased Jan. 1, 2021, cost 300,000
Truck No. 4 purchased July 1, 2021, cost 240,000
Balance, Jan. 1, 2022 P940,000

The Accumulated Depreciation—Trucks account previously adjusted to January 1, 2022, and entered in the
ledger, had a balance on that date of P302,000 (depreciation on the four trucks from the respective dates of
purchase, based on a 5-year life, no salvage value). No charges had been made against the account before
January 1, 2022.

Transactions between January 1, 2022, and December 31, 2025, which were recorded in the ledger, areas
follows.
July 1, 2022 Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of which was
P400,000. Isidro Mfg. Co. paid the automobile dealer P220,000 cash on the transaction. The
entry was a debit to Trucks and a credit to Cash, P220,000. The transaction has commercial
substance.
Jan. 1, 2023 Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited Trucks, P35,000.
July 1, 2024 A new truck (No. 6) was acquired for P420,000 cash and was charged at that amount to the
Trucks account. (Assume truck No. 2 was not retired.)
July 1, 2024 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for P7,000
cash. Isidro Mfg. Co. received P25,000 from the insurance company. The entry made by the
bookkeeper was a debit to Cash, P32,000, and credits to Miscellaneous Income, P7,000, and
Trucks, P25,000.

Entries for depreciation had been made at the close of each year as follows: 2022, P210,000; 2023, P225,000;
2024, P250,500; 2025, P304,000.
QUESTIONS:
96. What is the total depreciation expense for the year ended December 31, 2022?
A. P180,000 B. P198,000 C. P172,000 D. P228,000
97. What is the gain (loss) on trade in of Truck #3 on July 1, 2022?
A. (P30,000) B. P10,000 C. (P60,000) D. P190,000
98. What is the net book value of the Trucks on December 31, 2025?
A. P414,000 B. P348,000 C. P228,500 D. P894,000
99. The total depreciation expense recorded for the 4-year period (2022-2025) is overstated by
A. P185,500 B. P265,500 C. P287,500 D. P275,500
100. Assuming that the books have not been closed for 2025, what is the compound journal entry on December
31, 2025 to correct the company’s errors for the 4-year period (2022-2025)?
A. Accumulated depreciation 629,500
Trucks 480,000
Retained earnings 9,500
Depreciation expense 140,000
B. Accumulated depreciation 665,500
Trucks 480,000
Retained earnings 45,500
Depreciation expense 140,000
C. Accumulated depreciation 665,500
Trucks 480,000
Retained earnings 185,500
D. Accumulated depreciation 665,500
Trucks 665,500