Activity Audit in Inventory
Activity Audit in Inventory
You were engaged by Asingan Corporation for the audit of the company’s financial statements for the year ended December 31,
2016. The company is engaged in the wholesale business and makes all sales at 25% over cost.
SALES PURCHASES
Date Reference Amount Date Reference Amount
Balance forwarded P7,800,000 Balance forwarded P4,200,000
12/27 SI No. 965 60,000 12/28 RR #1059 36,000
12/28 SI No. 966 225,000 12/30 RR #1161 105,000
12/28 SI No. 967 15,000 12/31 RR #1162 63,000
12/31 SI No. 969 69,000 12/31 RR #1163 96,000
12/31 SI No. 970 102,000 12/31 Closing entry
(4,500,000)
12/31 SI No. 971 24,000 P -
12/31 Closing entry
(8,295,000)
P -
Note: SI = Sales Invoice RR = Receiving Report
You observed the physical inventory of goods in the warehouse on December 31 and were satisfied that it was properly taken.
When performing sales and purchases cut-off tests, you found that at December 31, the last Receiving Report which had been used
was No. 1163 and that no shipments had been made on any Sales Invoices whose number is larger than No. 968. You also obtained
the following additional information:
a) Included in the warehouse physical inventory at December 31 were goods which had been purchased and received on Receiving
Report No. 1160 but for which the invoice was not received until the following year. Cost was P27,000.
b) On the evening of December 31, there were two trucks in the company siding:
Truck No. XXX 888 was unloaded on January 2 of the following year and received on Receiving Report No. 1163. The freight
was paid by the vendor.
Truck No. MGM 357 was loaded and sealed on December 31 but leave the company premises on January 2. This order was sold
for P150,000 per Sales Invoice No. 968.
c) Temporarily stranded at December 31 at the railroad siding were two delivery trucks enroute to ABC Trading Corporation. ABC
received the goods, which were sold on Sales Invoice No. 966 terms FOB Destination, the next day.
d) Enroute to the client on December 31 was a truckload of goods, which was received on Receiving Report No. 1164. The goods were
shipped FOB Destination, and freight of P2,000 was paid by the client. However, the freight was deducted from the purchase price
of P800,000.
QUESTIONS: Based on the above and the result of your audit, determine the following:
Problem 2
During your audit of the records of the Manaoag Corporation for the year ended December 31, 2016, the following facts were
disclosed:
Units
Explanation 1/1/16 12/31/16
Raw materials 35,000 ?
Work in process (80% completed) - 25,000
Finished goods 15,000 40,000
Sales, 200,000 units
c) Raw materials are issued at the beginning of the manufacturing process. During the year, no returns, spoilage, or wastage
occurred. Each unit of finished goods contains one unit of raw materials.
d) Inventories are stated at cost as follows:
Raw materials – according to the FIFO method
Direct labor – at an average rate determined by correlating total direct labor cost with effective production during the period
Manufacturing overhead – at an applied rate of 150% of direct labor cost
QUESTIONS: Based on the above and the result of your audit, answer the following:
Problem 3
The Anda Company is on a calendar year basis. The following data were found during your audit:
a. Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had been excluded from the
inventory, and further testing revealed that the purchase had been recorded.
b. Goods costing P50,000 had been received, included in inventory, and recorded as a purchase. However, upon your
inspection the goods were found to be defective and would be immediately returned.
c. Materials costing P250,000 and billed on December 30 at a selling price of P320,000, had been segregated in the
warehouse for shipment to a customer. The materials had been excluded from inventory as a signed purchase
order had been received from the customer. Terms, FOB destination.
d. Goods costing P70,000 was out on consignment with Hermie Company. Since the monthly statement from Hermie
Company listed those materials as on hand, the items had been excluded from the final inventory and invoiced on
December 31 at P80,000.
e. The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB point of shipment on
December 31. However, this inventory was found to be included in the final inventory. The sale was properly
recorded in 2005.
f. Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped at December 31, and were
not included in the inventory. A review of the customer’s purchase order set forth terms as FOB destination. The
sale had not been recorded.
g. Your client has an invoice from a supplier, terms FOB shipping point but the goods had not arrived as
yet. However, these materials costing P170,000 had been included in the inventory count, but no entry had been
made for their purchase.
h. Merchandise costing P200,000 had been recorded as a purchase but not included as inventory. Terms of sale are
FOB shipping point according to the supplier’s invoice which had arrived at December 31.
Further inspection of the client’s records revealed the following December 31, 2006 balances: Inventory, P1,100,000;
Accounts receivable, P580,000; Accounts payable, P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net
income, P510,000.
QUESTIONS:
Based on the above and the result of your audit, determine the adjusted balances of following as of December 31, 2006:
1. Inventory
a. P1,230,000 c. P1,550,000
b. P1,650,000 d. P1,480,000
2. Accounts payable
a. P710,000 c. P810,000
b. P540,000 d. P760,000
3. Net sales
a. P4,550,000 c. P4,730,000
b. P4,650,000 d. P4,970,000
4. Net purchases
a. P2,370,000 c. P2,150,000
b. P2,420,000 d. P2,320,000
5. Net income
a. P220,000 c. P540,000
b. P290,000 d. P550,000