Operations-Audit-Compre-problems-with-solution
Operations-Audit-Compre-problems-with-solution
With solution
As a newly hired audit staff, you are assigned to audit the assertions pertaining to the following.
The auditee is suspecting that the company’s accountant does not reflect the correct amount of
the following assertions as of December 31, 20x1:
a. On April 1, 20x1, Company purchased the equipment with a cash price of P7,580,200
with the following additional cost.
Non-refundable taxes 15,000
Trail and safety machine to protect the equipment 14,850
Cooling cost need for the machine 47,450
Cost of training employees who will use the machine 45,000
Insurance cost for the whole year 24,000
Salvage value of the equipment 250,000
Useful life 15
Depreciation method 1.5 declining
Actual usage of the equipment June 01, 20x1
Solution:
Cash price 7,580,200
Non-refundable taxes 15,000
Trail and safety machine to protect the equipment 14,850
Cooling cost need for the machine 47,450
Cost of the equipment 7,657,500
e. On January 01, the company received a grant from the government in the amount of P10
million for the construction of the building that will be completed after 5 years. The
budgeted expenditure for the 5-year construction are as follows:
Year 1 8,750,000
Year 2 6,750,000
Year 3 2,580,500
Year 4 4,758,500
Year 5 9,450,200
Solution:
Year 1 8,750,000
Year 2 6,750,000
Year 3 2,580,500
Year 4 4,758,500
Year 5 9,450,200
Total expenditure 32,289,200
f. On January 01, 20x0, the company accepted a construction project for P25 million with
the estimated cost of P16,500,000. The details of the project are as follows:
Year 20x0 Year 20x1
Cost incurred to date 2,980,450 8,250,500
Estimated cost to complete 13,319,000 12,168,200
Cost incurred for the next year usage 200,550 100,850
Collection 250,000 300,000
Solution
Year 20x0 Year 20x1
Contract asset 25,000,000 25,000,000
Estimated cost to complete (16,500,000) (16,500,000)
Unearned profit 8,500,000 8,500,000
g. On January 01, the company invests in debt securities through profit or loss, four-year
8% 800,600, interest is payable annually December 31, the prevailing rate for this
investment is 12%. At the end of the year the prevailing rate is 10.5%
h. During the year the company had a net income of P4,780,250. The authorized capital
stock 250,000 with P30 as par value per share.
Common share 45,000
Share premium – common share 37,500
14% Preference share P25 par value 625,000
August 01, issued 25,000 common shares at a selling price of 3,750,000
P150
10% 4 year bonds payable, interest payable annually 1,000,000
Solution:
Common shares – Jan 01 (45,000 / P30 par value) 1,500 shares
Issued shares – Aug 01 (25,000 shares x 5/12) 10,417 shares
Average outstanding common shares 11,917 shares
Net income 4,780,250
Interest expense on bonds payable (1,000,000 x 10%) (100,000)
Dividends – preference shares (625,000 x 14%) (87,500)
Net income distributable to common shares 4,592,750
/ Average outstanding common shares 11,917 shares
Earnings per share (EPS) 385.39