CPA REVIEW SCHOOL OF THE PHILIPPINES: Manila AUDITING PROBLEMS FINAL PRE-BOARD EXAMINATION, ‘April 19, 2015 PROBLEM 2 ~ EVERLASTING COMPANY 7B ‘Subsidiary Ledger General Ledger Per books 4,023,527 P3,934,014 ANE 18,750 18,750 AES ~ (36,845) write-offs (187,608) Sale, FOB shipping point 61.250 Per audit (3.915.919 P3915,919 PROBLEM 3— SANAWE COMPANY 11, © PATENTS Balance per books, Dec. 31, 2015 1,650,000 Unamortized balance of 225,000 erroneously charged to account in January 2012 (P225,000 x 7/10) (157,500) Corrected balance before 2015 amortization 1,492,500 2015 amortization: Patent with 2 years remaining life (P630,000 x 7/14 = P315,000/2 years) (157,500) Remaining patent (P1,492,500 ~ P315,000 = P1,177,500/7 years) (168.214) Carrying value, December 33, 2025, 12. A FRANCHISE AGREEMENT Balance per books, Decernber 31, 2015 285,000 Annual payment charged to account (435,000) Corrected balance before 2015 amortization 150,000 2015 amortization (P150,000/5 years) (30,000) Carrying value, December 31, 2015 P120,000 PROBLEM 5 ~ SENDONG COMPANY/LOTLOT, INC. Retalned Earnings Net income over (under) Devember 31, 2015 2014 2015 ‘Over (under) L (46,500) 46,500 P - 2 (65,000) - (65,000) 6,500 6,500 - 33,000 33,000 3 120,000 320,000 (30,000) (30,000) (60,000) 4 (84,000) = (24,000) 5. 72,000 (36,000) 36,000 6 4,500) 14,600 = PL41.600) 28.100 B133,500) 2014 2015 ‘Net income, as reported 530,000 P 999,000 1 (420,000) 129,000 2 (3,000) 7,800 3. (10,800) 14,400 Corrected net income. P396.200 PLd61200 PROBLEM 6 —PIPIT COMPANY 26, B Carrying amount of assets 5,700,000 Value in use (5,350,000) Impairment loss 350,000 ‘Allocated to Goodwit (150,000) Remaining impairment joss 200.000 Page Lof ¢ Pages‘CPA REVIEW SCHOOL OF THE PHILIPPINES (PAR) - MANILA AUDITING PROBLEMS PRE Buildings Machinery Allocated loss: Buildings (24/42 x P200,000) P114,286 Machinery (18/42 x P200,000) Pas714 Reallocated loss 164,286) 4.286 50,000 P150.000 27. & Buildings 4,200,000 ‘Accumulated depreciation (P1,800,000 + P50,000) (2,850,000) Carrying value 2,350,000 28. C_ Precimpalement hook value: Buildings 4,200,000 A/D (P1,800,000 + P600,000) (2,400,000) 1,800,000 Factory machinery 2,200,000 AID (P00,000 + 450,000) (850.000) 1,350,000 P3,150,000 ‘Actual book value: Buildings 4,200,000 AID (P1,800,000 + 50,000 + P650,000) 10,000) P,700,000 Factory machinery 2,200,000 AAJD (P400,000 + P150,000 + 500,000) (4.050,000) | _1,150,00) 2,850,000 Reversal of impairment loss 300.000 2D Carrying Allocation Net Amount Proportion of excess Carrying Amount Buildings —P1,700,000 1,700/2,850 119,298 P1,819,298. Machinery 3.150.000 «1,150/2,850 _80702 1.230.702 2,850,000 PRoo.ong —F3.950.000 30. B_ Reversal of impairment loss 200,000 ‘Amount allocated to Butidings (P1,800,000 ~ P1,700,000) (400,000) ‘Amount allocated to Factory machinery 100,000 Factory machinery 2,200,000 ‘Accumulated depreciation and impairment losses {P1,050,000 ~ P100,000) (950,000) ‘Net carrying amount 1.250.000 PROBLEM 8 — HVR Company 36. D_ Present value of principal (P3,600,000 x 0.7514) 2,705,040 Present value of interest (P3,600,000 x 5% x 2.4860) 447.490 Consultation service fee revenue P3152.520 37. D Interest Principal Tatal PvE Pe Present Value 32/31/15 (P7.2M x 4%) P288,000 2,400,000 2,688,000 0.8772 —P2,357,914 12/31/16 (P4.8Mx4%) 192,000 2,400,000 2,592,000 0.7695 «1,994,544 12/31/17 (P2.4M x 4%) 96,000 2,400,000 2,495,000 0.6750 _1,684,800 Present value of note 6,037,258 Carrying amount of equipment 4,800,000 Gain on sale of equipment PL237.258 Note receivable from sale of land: Date Interest Income Carrying Amount 1/15 2,181,960 12/31/15 218,196 2,400,356 12/31/16 239,844%* 2,640,000 ++ 2,640,000 principal x 0.8265 PVF at 10% for 2 periods. *** 92,640,000 - P2,400,156 Note receivabie from consultation: Effective Nominat Discount Canying Date Interest Interest Amorbvation Amount yayis = 3,152,520 12PYIS 315,252 prs0,000 36,252 3,287,772(CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA AUDITING PROBLEMS — FINAL PREBOARD EXAMINATION 32/31/16 328,777 180,000 148,777 3,436,549 12/17 343,451" 180,000 163,451* 3,600,000 + 73,600,000 - 3,436,549 = P163,451. ** P163,451 + P180,000 = P343,451 Note receivable from sale of equioment: Effective Nominal Principal Carrying Date Interest Amortization liection —_ Amount yas — — — “= 6,037,258 12/34/15 845,216 P288,000-PSS7,216 —P2,400,000 4,194,474 12/34/16 587,226 192,000 395,226 2,400,000 2,189,700 42/31/17 306,300" 96,000 240,300 © 2,400,000” — ___*F2,800,000 — P2,189,700 = P210,300 + P2000 » 306,300 PROBLEM 10 ~JARAN CO. 46, 2014 Depreciation expense ~ Vehicles: Beg. Balance (P468,000 ~ P196,560) x 40% 108,576 June 22 acquisition (P162,000 x 40% x 6/12) 32,400 jo bna0.976 47, 2014 Depreciation expense - Machinery: Machine 1 (P430,000 ~ P25,000 = P405,000/5 x 8/12) P 54,000 2 {((P480,000 - P30,000 = P450,000/6) 75,000 3 (P592,000 ~ P40,000 = P552,000/5) 210490 | Total P239,400, 48. Accumulated depreciation — Office furniture, Dec. 31,-2035: (P115,000 ~ P5,400 = P109,600/8 x 1 4/22) PLB267 49, 2016 Depreciation expense ~ Machinery: Machine 2: Cost (P480,000 +120,000) 600,000 AND, Feb. 2011 ~Dec, 31, 2015: (P480,000 ~ P30,000/6 x-4 11/12) 368,750 Carrying value, 1/3/16 231,250 Revised residual value £50,000) Revised remaining ife (6 - 4 12/12 + 1) 2S.months Depreciation (P181,250/25 x 12) P-87,000 Machine 3 (P552,000/5) 110,400 Total 197.400 150. 2026 Depreciation expense: 1 Bulldings (1,857,200 ~ P50,000/20) 30,360 Machinery 397,400 Vehicles: lg, traded in on June 20, 2036: i (P234,000 ~ P98, 280 = P135,720 x 60% x 60% = 48,859 x 40% x 6/12) P9,772 Acquired June 22, 2014, scrapped Oct. 4, 201 (P:162,000 ~ [P162,000 x 40% x 6/12] = 129,600 x 60% x 40% x 9/12) 23,328 ‘Acquired through trade in on June 20, 2016: (P270,000 x 40% x 6/12) 24.000 87,100 Office furniture (P115,000 ~ P5,400 = P109,600/8) 13,700 Land improvements (P55,000/10) —5,500 Total (394.060 PROBLEM 11 ~ HARLINGTON COMPANY/LABADA CO. 51. A Net income before trading security adjustment 2,700,000 ‘Unreatized oss (P3,465,000 cost ~ P3,195,000 fair value) (220.000) Net income, as adjusted 2.430.000CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) ~ MANILA PROBLEMS FINAL PREBOA 52. B Net income before trading security adjustment 2,700,000 Unreailzed gain (P3,465,000 cost ~ P3,564,000 fair value) 99,000 ‘Net income, as adjusted 2,209,000 LABADA CO. 53. D Canrying Valve air Value Ganda Co. 1,710,000 P1,759,500 ‘Waston, Inc. (P135.x 1,800) _243,000 229,500 P1.953,000 ‘P1.989,000 Unrealized gain {P1,989,000 ~ P4,953,600) 36,000 54. © Net proceeds (P93 x 15,000 = P1,395,000 ~ P13,500) 1,381,500 * Carrying value 1,251,000) Gain on sale P130,500 55. B Trading securities at fair value BL.989,000 PROBLEM 12 — DIAS COMPANY/BAIKAL COMPANY 56. A. Present value of principal (P4,000,000 x 0.77218) 3,088,720 Present value of interest payments (P4,000,000 x 6% = P240,000 x 2.53130) _607,512 Liability component of convertible debt P3,996,232 Proceeds 4,000,000 ability component, 3.696.232 Equity component of convertible debt 2 303.768 57. Interest Interest Discount Carrying Date Paid Expense — Amortizetion Value yori - - ~ P3,696,232 42/31/14 240,000 332,661 «92,661 «3,788,893, 12/31/15 240,000 341,000 101,000 3,889,893 12/31/16 240,000 350,207" 110,107 4,000,000 Adjustment due to rounding 58. © Carrying value of bonds, Dec. 31, 2015 3,889,893 Share premium - conversion privilege 303,768 Total consideration 4,193,661, Par value of ordinary shares [P2 x (4,000 x 200)} 1,600,000 Share premium ~ issuance P2593,661 BAIKAL COMPANY 59, A Cost of equipment (P1,200,000 x 0.68301) 819,612 Accumulated depreciation, Dec. 31, 2016 (P819,612 — P150,000 = P569,612 x 2/5) 267, Book value, Dec. 31, 2016 PSSL767 60. B Carrying value of note payable at Dec. 31, 2016 904.730 Discount Carrying Date Amortization 12.31.14 = 819,612 12.31.45 81,961 + 901,573 ? 12,3116 99,157 991,730 12.31.17 99,173 1,090,903 12.31.18 109,097 * 1,200,000 1 819,612 x 10% PR0LS73 = P819,612 + PB1,961 2 Pa adjustment due to rounding o END —~