CONTROL NO.

MOCK BOARD EXAMINATIONS

November 10, 2019

AUDITING
NOTE: Final answers must be indicated on the separate answer sheet provided. Intermediary work on
questionnaire and scratch paper will merit no points.

1. ________ refers to the application of relevant, training, knowledge and experience, within the context
provided by auditing, accounting and ethical standards in making informed decisions about the
course of action that are appropriate in the circumstances of the audit engagement.
A. Compliance C. Professional judgment
B. Professional competence D. Reasonable assurance

2. The firm shall establish policies and procedures designed to provide it with reasonable assurance
that engagements are performed in accordance with professional standards and regulatory and
legal requirements, and that the firm or the engagement partner issue report that are appropriate
in the circumstance. Such policies and procedures shall include:
A. Review responsibilities
B. Supervision responsibilities
C. Matters relevant to promoting consistency in the quality of engagement performance
D. All of the choices

3. Which of the following services provides a moderate level of assurance?

A. Agreed-upon procedures C. Compilation
B. Audit D. Review

4. A measure of the auditor’s assessment of the likelihood that there are material misstatement in an
account before considering the effectiveness of the client’s internal control is
A. Acceptable audit risk C. Inherent risk
B. Control risk D. Statistical risk

5. Detection risk is
A. The risk that the auditor gives an inappropriate audit opinion when the financial statements
are materially misstated
B. The risk that an auditor’s substantive procedures will not detect a misstatement that exist in
an account balance or class of transactions that could be material, individually or when
aggregated with misstatements in other balances or classes
C. The susceptibility of an account balance or class of transactions to misstatements that could
be material, individually or when aggregated with misstatements in other balances of
classes, assuming that there were no related internal controls
D. The risk that a misstatement that could occur in an account balance or class of transactions
and that could be material individually or when aggregated with misstatements in other
balances or classes, will not be prevented or detected and corrected on a timely basis by the
accounting and internal control systems
 6. In pursuing a firm’s quality control objectives, a firm should adopt policies and procedures to enable
it to identify and evaluate circumstances and relationships that create threats or reduce them to an
acceptable level by applying safeguards, or, if considered appropriate, to withdraw from the
engagement. Which quality control element would be most likely to satisfy?
A. Monitoring
B. Human resources
C. Ethical requirements
D. Leadership responsibilities for quality within the firm

7. It is the process designed to provide an objective evaluation, before the auditor’s report is issued,
of the significant judgements the engagement team made and the conclusions they reached in
formulating the auditor’s report:
A. Engagement of quality control review
B. Monitoring
C. Peer review
D. Performance review

8. An example of vouching would be to

A. Trace from receiving reports to the acquisitions journal
B. Race from cancelled checks to the cash disbursement journal
C. Trace from the acquisitions journal to supporting vendor’s invoices
D. Trace from duplicate bank deposit slips to the cash receipts journal

9. Which of the following audit tests would be regarded as a test of controls?

A. Comparison of the inventory pricing to vendor’s invoices
B. Tests of the additions to property, plant and equipment by physical inspections
C. Tests of the signatures on canceled checks to board of directors’ authorizations
D. Review of the specific items making up the balance in a given general ledger account

10. When obtaining an understanding of controls that relevant to the audit, the auditor is required to
A. Evaluate the design of those controls
B. Determine whether those controls have been implemented
C. Evaluate the design of those controls and determine whether they have been implemented
D. Evaluate the design of those control and determine whether they have been implemented
by performing tests of controls

11. “Subsequent events” for reporting purposes are defined as events which occur subsequent to the
A. Balance sheet date
B. Date of the auditor’s report
C. Balance sheet date but prior to the date of the auditor’s report
D. Date of the auditor’s report and concern contingencies which are not reflected in the
financial statements

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 12. The use of pre-numbered invoices, then accounting for their numeric sequence, meets primarily
the:
A. Completeness assertion
B. Existence or occurrence assertion
C. Rights and obligations assertion
D. Valuation or allocation assertion

13. Place the following steps in their proper order:

1. Analyze exception
2. Select the sample
3. Define attributes and exception conditions
4. State the objectives of the audit test
5. Define the sampling unit

A. 1, 2, 3, 4, 5 C. 4, 3, 1, 2, 5
B. 1, 3, 2, 4, 5 D. 4, 3, 5, 2, 1

14. Increase in the planned allowance for sampling risk have what effect on required sample size?
A. Decreases C. Indeterminate
B. Increases D. No effect

15. GQ, CPA audited the May Company accounts receivable with a book value of P3,000,000 and 4,400
accounts. In a sample of 400 accounts, GQ found P13,200 understatement errors. The projected
likely misstatement for the sample is:
A. P13,200 C. P272,727
B. P145,200 D. 435,600

For Numbers 16 to 20:

The following accounts were included in the unadjusted trial balance of ASSET Company as of
December 31, 2019:

Cash P481,600
Accounts Receivable 1,127,000
Inventory 3,025,000
Accounts Payable 2,100,500
Accrued Expenses 215,500

During your audit, you noted that ASSET Company held its cash books open after year-end. In addition,
your audit revealed the following:
a. Receipts for January 2020 of P327,300 were recorded in the December 2019 cash receipts book.
The receipts of P180,500 represent cash sales and P147,250 represent collections from
customers, net of 5% cash discounts.
b. Accounts payable of P186,200 was paid in January 2020. The payments, on which discounts of
P6,200 were taken were included in the December 2019 check register.
c. Merchandise inventory is valued at P3,025,00 prior to any adjustments. The following
information had been found relating to certain inventory transactions:

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 a. Goods valued at P137,500 are on consignment with a customer. These goods are not
included in the inventory figure.
b. Goods costing P108,750 were received from a vendor on January 4, 2020. The related
invoice were received and recorded on January 6, 2020. The goods were shipped on
December 31, 2019, terms FOB shipping point.
c. Goods costing P318,750 were shipped on December 31, 2019 and were delivered to the
customer on January 3, 2020. The terms of the invoice were FOB shipping point. The
goods were included in the December 2019 ending inventory even though the sale was
recorded in 2019.
d. A P91,000 shipment of goods to a customer on December 30, 2019 terms FOB destination
are not included in the year-end inventory. The goods cost P65,000 and were delivered
to the customer on January 3, 2020. The sale was properly recorded in 2020.
e. The invoice for goods costing P87,500 was received and recorded as a purchase on
December 31, 2019. The related goods, shipped FOB destination, were received on
January 4, 2020, and this were not included in the physical inventory.
f. Goods valued at P306,400 are on consignment from a vendor. These goods are not
included in the physical inventory.

Based on the above and the result of your audit, determine the adjusted balances of the following as
of December 31, 2019:
16. Cash
A. P481,600 C. P334,300
B. P340,500 D. P346,700

17. Accounts Receivable

A. P1,454,300 C. P1,127,000
B. P1,282,000 D. P1,274,250

18. Inventory
A. P3,017,500 C. P2,930,000
B. P3,040,000 D. P2,505,000

19. Accounts Payable

A. P2,395,450 C. P2,286,500
B. P2,307,950 D. P2,301,750

20. Current Ratio

A. P2.00 C. P1.84
B. P1.83 D. P2.01

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For items 21-25:
Shown below is the bank reconciliation for Marikina Company for November 2020:

Balance per bank, Nov. 30, 2020 P150,000

Add: Deposits in transit 24,000
Total 174,000
Less: Outstanding checks P28,000
Bank credit recorded in error 10,000 (38,000)
Cash balance per books, Nov. 30, 2020 P136,000

The bank statement for December 2020 contains the following data:

Total deposits P110,000

Total charges, including an NSF check of P8,000
And a service charge of P400 96,000

All outstanding checks on November 30, 2020, including the bank credit, were cleared in the bank
in December 2020.

There were outstanding checks of P30,000 and deposits in transit of P38,000 on December 31, 2020.

Based on the above and the result of your audit, answer the following:

21. How much is the cash balance per bank on December 31, 2020?
A. P154,000 C. P164,000
B. P150,000 D. P172,400

22. How much is the December receipts per books?

A. P124,000 C. P110,000
B. P96,000 D. P148,000

23. How much is the December disbursements per books?

A. P96,000 C. P89,600
B. P79,600 D. P98,000

24. How much is the cash balance per books on December 31, 2020?
A. P150,000 C. P180,400
B. P170,400 D. P162,000

25. The adjusted cash in bank balance as of December 31, 2020 is

A. P141, 500 C. P172,000
B. P162,000 D. P196,000

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For items 26-30
Bogo Corporation began operations on January 1, 2020. The company was authorized to issue 60,000, P10
par value, ordinary shares and 120,000 shares of 10%, P100 par value convertible preference shares.

In connection with your audit of the company’s financial statements, you noted the following transactions
involving shareholders’ equity during 2020:

Jan. 1 Issued 1,500 ordinary shares to the corporation promoters in exchange for equipment valued
at P510,000 and services valued at P210,000. The property costs P270,000 3 years ago and was
carried on the promoters’ books at P150,000.

Jan. 31 Issued 30,000 convertible preference shares at P150 per share. Each share can be converted to
five ordinary shares. The corporation paid P225,000 to an agent for selling the shares.

Feb. 15 Sold 9,000 ordinary shares at P390 per share. The corporation paid issue costs of P75,000.

May 30 Received subscriptions for 12,000 ordinary shares at P450 per share.

Aug. 30 Issued 2,100 ordinary shares and 4,200 preference shares in exchanged for a building with a
fair value of P1,530,000. The building was originally purchased for P1,140,000 by the investors
and has a carrying amount of P660,000. In addition, 1,800 ordinary shares were sold for
P720,000 cash.

Nov. 15 Payments in full for half of the subscriptions and partial payments for the rest of the
subscriptions were received. Total cash received was P4,200,000. Shares stock were issued for
the fully paid subscriptions. The balance is collectible next year.

Dec. 1 Declared a cash dividend of P10 per share on preference shares, payable on December 31 to
shareholders of record on December 15, and P20 per share cash dividend on ordinary shares,
payable on January 15, 2021 to shareholders of record on December 15.

Dec. 31 Paid the preference share dividend.

Profit for the first year of operations was P1,800,000.

QUESTIONS:

Based on the above and the result of your audit, determine the following as of December 31, 2020:

26. Ordinary share capital

A. P204,000 C. P264,000
B. P144,000 D. P186,000

27. Share premium – preference

A. P1,500,000 C. P1,275,000
B. P1,545,000 D. P1,860,000

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 28. Share premium – ordinary
A. P8,211,000 C. P11,121,000
B. P10,851,000 D. P10,032,000

29. Retained earnings

A. P1,050,000 C. P930,000
B. P1,170,000 D. P1,458,000

30. Total equity

A. P17,295,000 C. P15,810,000
B. P16,950,000 D. P17,010,000

In connection with your audit of Cuyapo Company’s financial statements for the year 2020, you noted
the following transactions affecting the property and equipment items of the company:

Jan. 1 Purchased real property for P5,026,000, which included a charge pf P146,000 representing
property tax for 2020 that had been prepared by the vendor; 20% of the purchase price is
deemed applicable to land and the balance to buildings. A mortgage of P3,000,000 was
assumed by Cuyapo on the purchase. Cash was paid for the balance.

Jan. 15 Previous owners had failed to take care of normal maintenance and repair requirements on
the buildings, necessitating current reconditioning at a cost of P236,800.

Feb. 15 Demolished garages in the rear of the building, P36,000 being recovered on the lumber salvage.
The company proceeded to construct a warehouse. The cost of such warehouse was P540,800,
which was P90,000 less than the average bids made on the construction by independent
contractors. Upon completion of construction, city inspectors ordered extensive modifications
to the building as a result of failure on the part of the company to comply with building safety
code. Such modifications, which could have been avoided, cost P76,800.

Mar. 1 The company exchanged its own shares with a fair value of P320,000 (par P24,000) for a patent
and a new equipment. The equipment has a fair value of P200,000.

Apr. 1 The new machinery for the new building arrived. In addition, a new franchise was acquired from
the manufacturer of the machinery. Payment was made by issuing bonds with a face value of
P400,000 and by paying cash of P144,000. The value of the franchise is set at P160,000, while
the machine’s fair value is P360,000.

May 1 The company contracted for parking lots and waiting sheds at a cost P360,000 and P76,800,
respectively. The work was completed and paid for on June 1.

Dec. 31 The business was closed to permit taking the year-end inventory. During this time, required
redecorating and repairs were completed at a cost of P60,000.

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Based on the above and the result of your audit, determine the cost of the following:

31. Land
A. P940,000 C. P976,000
B. P1,005,200 D. P1,052,800

32. Buildings
A. P4,645,600 C. P4,762,400
B. P5,005,600 D. P4,681,600

33. Machinery and equipment

A. P360,000 C. P576,615
B. P560,000 D. P659,692

34. Land improvements

A. P360,000 C. P436,800
B. P76,800 D. P0

35. Total property, plant and equipment

A. P6,764,400 C. P6,718,092
B. P6,731,200 D. P6,618,400

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