Day 1 Accuracy and valuation
April 16, 2021
Audit emphasis:
Audit of Inventory Asset/income
Evidence accumulation and -Possible overstatement. (bec. of
evaluation: reasonable assurance)
Express opinion
-Existence/occurrence assertion
Sufficient and appropriate
evidence Liabilities/Expenses
Audit procedure:
-Possible understatement
-risk assessment procedure
(RAP) initial risk assessment -completeness assertion
(inherent risk)
-test of control procedure (TOCP)
-substantive procedure (SP) Standard audit procedure for
inventories:
3 assertions: Observation of physical count
1. Transaction and event Required by PSA 501
Completeness Purpose:
Occurrence To gather evidence regarding
existence ad condition of inventory.
Classification
Accuracy
Standard assumptions:
Cutoff
Normally excluded, but should be
2. Account balances included:
Completeness Effect: inventory understatement
Obligation and rights 1. Goods in transit:
Valuation and allocation Purchase-FOB SP
Existence Sale-FOB Des
3. Presentation and disclosure 2. goods out on consignment
Completeness 3. good located on other places
Occurrence and rights and obligation Items normally included, but should be
exclude
Classification and understandability
,1. held on consignment
2. goods already sold
Answer in problem
1. a
2. c
3. a
4. b
5. a
PROBLEM NO. 1
Pasay Company, a manufacturer of small tools, provided the following information from
its accounting records for the year ended December 31, 2020:
Inventory at December 31, 2020 (based on physical count on Dec. 31, 2020)
P1,290,000
Accounts payable at December 31, 2020 876,000
Net sales (sales less sales returns) 8,087,000
Additional information follows:
a. Parts held on consignment from Anito to Pasay amounting to P9,000, were included
in the physical count of goods in Pasay’s warehouse on December 31, 2020, and in
accounts payable at December 31, 2020.
b. Retailers were holding P50,000, at cost, of goods on consignment from Pasay, at
their stores on December 31, 2020.
c. Included in the physical count were tools billed to a customer FOB shipping point on
December 31, 2020. These tools had a cost of P31,000 and were billed at P40,000.
The shipment was on Pasay’s loading dock waiting to be picked up by the common
carrier.
d. P15,000 worth of parts which were purchased from Sogo and paid for in December
2020 were sold in the last week of 2020 and appropriately recorded as sales of
, P21,000. The parts were included in the physical count on December 31, 2020,
because the parts were on the loading dock waiting to be picked up by the customer.
e. Goods were in transit from a vendor to Pasay on December 31, 2020. The invoice
cost was P71,000, and the goods were shipped FOB shipping point on December 29,
2020.
f. Work in process inventory costing P30,000 was sent to an outside processor for
plating on December 30, 2020.
g. Tools returned by customers and held pending inspection in the returned goods area
on December 31, 2020, were not included in the physical count. On January 8, 2021,
the tools costing P32,000 were inspected and returned to inventory. Credit memos
totaling P47,000 were issued to the customers on the same date.
h. Tools shipped to a customer FOB destination on December 26, 2020, were in transit
at December 31, 2020, and had a cost of P21,000. Upon notification of receipt by the
customer on January 2, 2021, Pasay issued a sales invoice for P42,000.
i. Goods, with an invoice cost of P27,000, received from a vendor at 5:00 p.m. on
December 31, 2020, were recorded on a receiving report dated January 2, 2021. The
goods were not included in the physical count, but the invoice was included in accounts
payable at December 31, 2020.
j. Goods received from a vendor on December 26, 2020, were included in the physical
count. However, the related P56,000 vendor invoice was not included in accounts
payable at December 31, 2020, because the accounts payable copy of the receiving
report was lost.
k. On January 3, 2021, a monthly freight bill in the amount of P6,000 was received. The
bill specifically related to merchandise purchased in December 2020, one-half of which
was still in the inventory at December 31, 2020. The freight charges were not included
in either the inventory or accounts payable at December 31, 2020.
REQUIRED:
Determine the adjusted amounts of:
a. Inventory as of December 31, 2020
b. Accounts Payable as of December 31, 2020
c. Net sales for the year 2020
April 16, 2021
Audit emphasis:
Audit of Inventory Asset/income
Evidence accumulation and -Possible overstatement. (bec. of
evaluation: reasonable assurance)
Express opinion
-Existence/occurrence assertion
Sufficient and appropriate
evidence Liabilities/Expenses
Audit procedure:
-Possible understatement
-risk assessment procedure
(RAP) initial risk assessment -completeness assertion
(inherent risk)
-test of control procedure (TOCP)
-substantive procedure (SP) Standard audit procedure for
inventories:
3 assertions: Observation of physical count
1. Transaction and event Required by PSA 501
Completeness Purpose:
Occurrence To gather evidence regarding
existence ad condition of inventory.
Classification
Accuracy
Standard assumptions:
Cutoff
Normally excluded, but should be
2. Account balances included:
Completeness Effect: inventory understatement
Obligation and rights 1. Goods in transit:
Valuation and allocation Purchase-FOB SP
Existence Sale-FOB Des
3. Presentation and disclosure 2. goods out on consignment
Completeness 3. good located on other places
Occurrence and rights and obligation Items normally included, but should be
exclude
Classification and understandability
,1. held on consignment
2. goods already sold
Answer in problem
1. a
2. c
3. a
4. b
5. a
PROBLEM NO. 1
Pasay Company, a manufacturer of small tools, provided the following information from
its accounting records for the year ended December 31, 2020:
Inventory at December 31, 2020 (based on physical count on Dec. 31, 2020)
P1,290,000
Accounts payable at December 31, 2020 876,000
Net sales (sales less sales returns) 8,087,000
Additional information follows:
a. Parts held on consignment from Anito to Pasay amounting to P9,000, were included
in the physical count of goods in Pasay’s warehouse on December 31, 2020, and in
accounts payable at December 31, 2020.
b. Retailers were holding P50,000, at cost, of goods on consignment from Pasay, at
their stores on December 31, 2020.
c. Included in the physical count were tools billed to a customer FOB shipping point on
December 31, 2020. These tools had a cost of P31,000 and were billed at P40,000.
The shipment was on Pasay’s loading dock waiting to be picked up by the common
carrier.
d. P15,000 worth of parts which were purchased from Sogo and paid for in December
2020 were sold in the last week of 2020 and appropriately recorded as sales of
, P21,000. The parts were included in the physical count on December 31, 2020,
because the parts were on the loading dock waiting to be picked up by the customer.
e. Goods were in transit from a vendor to Pasay on December 31, 2020. The invoice
cost was P71,000, and the goods were shipped FOB shipping point on December 29,
2020.
f. Work in process inventory costing P30,000 was sent to an outside processor for
plating on December 30, 2020.
g. Tools returned by customers and held pending inspection in the returned goods area
on December 31, 2020, were not included in the physical count. On January 8, 2021,
the tools costing P32,000 were inspected and returned to inventory. Credit memos
totaling P47,000 were issued to the customers on the same date.
h. Tools shipped to a customer FOB destination on December 26, 2020, were in transit
at December 31, 2020, and had a cost of P21,000. Upon notification of receipt by the
customer on January 2, 2021, Pasay issued a sales invoice for P42,000.
i. Goods, with an invoice cost of P27,000, received from a vendor at 5:00 p.m. on
December 31, 2020, were recorded on a receiving report dated January 2, 2021. The
goods were not included in the physical count, but the invoice was included in accounts
payable at December 31, 2020.
j. Goods received from a vendor on December 26, 2020, were included in the physical
count. However, the related P56,000 vendor invoice was not included in accounts
payable at December 31, 2020, because the accounts payable copy of the receiving
report was lost.
k. On January 3, 2021, a monthly freight bill in the amount of P6,000 was received. The
bill specifically related to merchandise purchased in December 2020, one-half of which
was still in the inventory at December 31, 2020. The freight charges were not included
in either the inventory or accounts payable at December 31, 2020.
REQUIRED:
Determine the adjusted amounts of:
a. Inventory as of December 31, 2020
b. Accounts Payable as of December 31, 2020
c. Net sales for the year 2020
