ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPALE  11 February 2023  11:45 AM - 02:45 PM

AUDITING FIRST PRE-BOARD EXAMINATION

INSTRUCTIONS: Select the correct answer for each of the questions. Mark only one
answer for each item by shading the box corresponding to the letter of your choice on
the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use pencil no. 2 only.

1. Evaluate the following statements:

I. Auditors obtain and evaluate evidence regarding assertions about economic
actions and events to verify the accuracy of those assertions.
II. Management may have incentives to present biased financial information,
but the various users of the statements are not likely to have
conflicting interests in the financial information.
a. Both statements are true.
b. Both statements are false
c. Only statement II is true
d. Only statement I is true

2. The following statements are correct, except

a. The overall objective of an audit is to obtain assurance whether the
financial statements are free of misstatement.
b. The foundation for the audit opinion formulation process relies on
obtaining evidence to support the auditor’s opinion.
c. Audit staff performing audit work must be appropriately supervised by
partners and managers.
d. Auditors should conduct their work with an attitude of professional
skepticism.

3. After obtaining an understanding of internal control and arriving at a preliminary

assessed level of control risk, an auditor decided to perform tests of controls.
The auditor most likely decided that:
a. Additional evidence to support a reduction in the assessed level of
control risk is not available.
b. An increase in the assessed level of control risk is justified for
certain financial statement assertions.
c. It would be efficient to perform tests of controls that would result
in a reduction in planned substantive procedures.
d. There were many internal control deficiencies that would allow
misstatements to enter the accounting system.

4. The objective of the System of Quality management (SOQM) is/are

I. To provide the firm with reasonable assurance that the firm and its
personnel fulfill their responsibilities in accordance with professional
standards and applicable legal and regulatory requirements, and conduct
engagements in accordance with such standards and requirements;
II. To provide the firm with absolute assurance that engagement reports
issued by the firm or engagement partners are appropriate in the
circumstances.

a. Only statement 1 is correct.

b. Both statements are correct.
c. Only statement 2 is correct.
d. Both statements are incorrect.

5. Based on the provisions of ISQM 1, which is the definition of quality risk?

a. The risk has a reasonable possibility of occurring or has a reasonable
possibility of individually, or in combination with other risks,
adversely affecting the achievement of one or more quality objectives.
b. The risk as probability of occurring and has a probability of
individually, or in combination with other risks, adversely affecting
the achievement of one or more quality objectives.
c. The risk has a reasonable possibility of occurring and has a reasonable
possibility of individually, or in combination with other risks,
slightly affecting the achievement of one or more quality objectives.
d. The risk has a reasonable possibility of occurring and has a reasonable
possibility of individually, or in combination with other risks,
adversely affecting the achievement of one or more quality objectives.

Page 1 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
6. Which of the following is not part of the systematic process called auditing?
a. Communicating results of the audit to users.
b. Procuring and evaluating evidence.
c. Assisting management in designing internal controls.
d. Comparing evidence regarding assertions to certain established criteria.
7. Which of the following is not a primary driver of audit quality?
a. Skills and personal qualities of audit staff.
b. Size of the audit firm.
c. Effective audit processes.
d. Audit firm culture.
8. When is the culture of an audit firm likely to provide a positive contribution
to audit quality?
a. When the leadership of the audit firm ensures partners and other staff
have sufficient time and resources to deal with difficult issues as
they arise.
b. When the leadership of the audit firm ensures robust systems for client
acceptance and continuation based on the likelihood of increased audit
fees.
c. When the leadership of the audit firm creates an environment where
achieving efficiency is valued, invested in and rewarded.
d. When the leadership of the audit firm ensures financial considerations
drive actions.
9. The following relates to an entity’s internal control. Which statement is true?
a. Internal control helps an organization eliminate the risk of failing to
provide users with reliable financial information.
b. Internal control is a process designed to guarantee the achievement of
the objectives of reliable financial reporting, compliance with laws
and regulations, and operating efficiency.
c. A deficiency in design of internal controls exists when an existing
control is not properly designed so that, even if the control operates
as designed, the control objective would not be met.
d. Effective internal control requires an organization to establish an
appropriate structure and clearly defined lines of responsibility and
authority where everyone in the organization has equal responsibility
for the effective operation of internal control.
10. What is the primary benefit of effective internal control in an organization?
a. Achieving certain organizational goals.
b. Completing a successful audit for the entity.
c. Maximizing value for shareholders.
d. Obtaining profitability and financial strength.
11. Which of the following is not one of the underlying principles of an effective
control environment?
a. The organization demonstrates a commitment to integrity and ethical
values.
b. The board of directors demonstrates independence from management and
exercises oversight for the development and performance of internal
control.
c. Management establishes, with board oversight, structures, reporting
lines, and appropriate authorities and responsibilities in pursuit of
objectives.
d. The organization considers the potential for fraud in assessing risks
to the achievement of objectives.
12. Which of the following assertions address whether accounts have been included
in the financial statements at appropriate amounts?
a. Completeness assertion.
b. Valuation or allocation assertion.
c. Rights and obligations assertion.
d. None of the above.
13. Which of the following is a procedure which analyzes plausible relationships among
financial and nonfinancial data?
a. Analytical procedures.
b. Scanning.
c. Reviewing.
d. Observation.
Page 2 of 21 0915-2303213  [email protected]
 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

14. Which of the following is a reason why an auditor needs an understanding of internal
controls?
a. To provide individual comments on internal control non-compliance.
b. To assess the risk of possible misstatements in the financial
statements.
c. To become comfortable that the client will pay its audit bills.
d. To assess materiality.
15. Which of the following is not a reason why an auditor obtains an understanding of
internal controls?
a. Understanding the entity's internal control is a requirement of
professional auditing standards.
b. The auditor must use the information to assess the risk of material
misstatements arising from the lack of internal control.
c. It is the primary basis for the audit report.
d. It assists the auditor in designing the nature, timing, and extent of
further audit procedures.
16. Evaluate the following statements:
Statement 1: From among PRBOA members, the Chairman of the PRBOA is tasked
to appoint a vice-chairman for a term of three (3) years.
(False)
Statement 2: The public practice of accountancy is confined to sole
proprietorship and partnership only. (True)

a. Only statement 1 is correct.

b. Both statements are correct.
c. Only statement 2 is correct.
d. Both statements are incorrect.
17. Which statement is true concerning materiality?
a. Misstatements are material if they could reasonably be expected to
influence the decisions of users of the financial statements.
b. Materiality guidelines are specifically prescribed by the law.
c. Materiality is not a useful concept in assessing internal control
effectiveness.
d. Materiality is a concept applied to financial statement presentation
but not to disclosures.
18. Which of the following statements is true regarding client acceptance or
continuance decisions?
a. An audit firm cannot discontinue providing audit services to a client
without just cause.
b. Potential audit fees are not a valid consideration in the acceptance or
continuance decision.
c. The client acceptance/continuance decision is one of the most important
factors in audit quality.
d. Audit firms are not permitted to conduct background checks on the
management of a potential client.
19. What type of relationship exists between audit risk and detection risk?
a. Direct.
b. Inverse.
c. Indirect.
d. No relationship.
20. Which of the following statements best describes what is meant by setting control
risk at 100%?
a. Controls are effective.
b. Controls are relevant.
c. Controls are ineffective.
d. Cannot be determined from the information given.
21. An increase in the risk of material misstatement would lead to which of the
following responses?
a. Increase in the extent of audit procedures.
b. Decrease in the extent of audit procedures.
c. Earlier performance of audit procedures.
d. No change in the extent or timing of audit procedures.

Page 3 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
22. An audit program provides an effective means for which of the following?
a. Reviewing the completeness and persuasiveness of procedures performed.
b. Recording the audit work performed and those responsible for performing
the work.
c. Organizing and distributing the work.
d. All the above.

23. What is the first phase in an audit?

a. Client acceptance or client continuance.
b. Understanding the client.
c. Understanding internal controls.
d. Testing of account balances.

24. The extent of procedures is affected mostly by which of the following factors?
a. The sheer volume of procedures to be applied by the auditor.
b. The time of year in which the client takes a physical inventory in the
warehouse.
c. The auditor's judgment that misstatements are probable in certain
balances.
d. The availability of the client's staff at or near the balance sheet
date.

25. Which components of the SOQM comprise quality objectives the firm is required to
establish, that form the basis for identifying and assessing quality risks and
designing and implementing responses?
I. Governance and Leadership
II. The firm’s risk assessment process
III. Relevant Ethical Requirements
IV. Acceptance and continuance of client relationship
V. Monitoring and remediation
VI. Engagement performance
VII. Resources
VIII. Information and communication
a. All of the above components
b. Only II and VI
c. All except I and III
d. All except II and V

26. Which of the following would be least likely to be regarded as a test of a control?
a. Tests of the additions to property by physical inspection.
b. Comparisons of the signatures on cancelled checks to the authorized
check signer list.
c. Tests of signatures on purchase orders.
d. Recalculation of payroll deductions.

27. Which of the following components is the foundation for all other components of
internal control?
a. Control risk assessment.
b. Control environment.
c. Information and communication.
d. Monitoring.

28. An audit program is created to specify which of the following?

a. The type of audit opinion to be rendered based upon procedures
performed.
b. The audit procedures that will be performed every year for the client.
c. How an auditor should think while performing audit procedures.
d. Audit objectives and procedures to be followed during the audit process.

29. Which one of the following is the primary reason for documenting audit work?
a. To prevent litigation by other parties that question the audit
performance.
b. To provide a stand-alone medium that gives audit conclusions and supports
the opinion.
c. To give the client a full reporting of all work performed on their
behalf.
d. To supply a point of reference for all auditors performing the work
subsequently.

Page 4 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

30. Which item is correct concerning the risk of material misstatement?

a. Risk of material misstatement arises because audit procedures have been
misapplied.
b. Risk of material misstatement can be controlled and changed by the
auditor.
c. Risk of material misstatement must be assessed in non-quantitative
terms.
d. Risk of material misstatement is controllable by the client.

31. In considering internal control within the revenue/receipt cycle, what is the
purpose of a transaction walk-through?
a. To assure that employees are performing assigned functions accurately.
b. To confirm the auditor's understanding of the internal control
structure.
c. To select documents for detailed tests of controls.
d. To verify the results of the auditor's sampling plan.

32. Which of the following factors would lead an auditor to assess inherent risk at a
higher level?
a. The account balance is easily determined without estimation.
b. The account balance is composed of a high volume of nonroutine
transactions.
c. The account balance is composed of simple transactions.
d. All of the above would lead the auditor to assess a higher level of
inherent risk.

33. Which of the following is a reason a predecessor auditor can decline to reply to
a firm’s current auditor?
I. Data is under court order.
II. They must always respond.
III. The client does not approve of confidential information being shared.

a. I, II, III
b. I and III only
c. II only
d. III only

34. Which of the following statements is false?

a. Inherent risk is inversely related to the level of control risk.
b. Inherent risk is directly related to the amount of evidence required in
account testing.
c. Inherent risk is the susceptibility of the financial statements to
material misstatement, assuming no internal controls.
d. Inherent risk and control risk are assessed by the auditor and
controlled by the client.

35. If the results of tests of controls support the design and operations of controls
as expected, the auditor uses ____ control risk as the preliminary assessment.
a. a lower
b. the same
c. a higher
d. either a lower or higher

PROBLEM 1
The following comprises Cash and Cash Equivalents account details of Antiope Inc.’s for
the period ended December 31, 2022:

Current account at Bank of the Philippine Islands P6,000,000

(P200,000 of the amount is compensating balance
for a 2-year loans payable to the bank due December
31, 2023. The entity is not legally restricted from
withdrawing the balance as per the agreement with
the bank)
Current account at Equitable PCI Bank (300,000)
(Overdrafts are repayable on demand and forms
an integral part of the entity’s cash management
policy)
Page 5 of 21 0915-2303213  [email protected]
 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
Payroll account 1,500,000
Foreign bank account – restricted (in USD) ** 60,000
Postage stamps 3,000
An officer’s post-dated check 12,000
Bank drafts 30,000
Credit memo from a vendor for a purchase return 60,000
Traveler’s check 150,000
Customer’s not-sufficient-funds check 45,000
Money orders 90,000
Petty cash fund (P10,200 in currencies, P2,100 in 30,000
employee check dated January 3, 2023 and expense
vouchers for P16,500)
Treasury bills, due 3/31/23 (purchased 11/30/22) 600,000
Treasury bills, due 1/31/23 (purchased 10/31/22) 900,000
Redeemable preference shares, mandatory
redemption date 3/31/2023 (acquired 3/31/2022) 100,000
Change fund 10,000
Bond sinking fund 1,000,000

**current exchange rate as of December 31, 2022 is at P55 for every USD1.

36. What is the correct cash and cash equivalent to be reported by the company in its
December 31, 2022 balance sheet?
a. 8,390,200 c. 8,490,200
b. 8,392,300 d. 8,472,300

PROBLEM 2:
The following information resulted from a count of Hippolyta Corp.’s cash on hand was
conducted on January 3, 2023 in relation to the audit of the entity’s financial
statements for the period ended December 31, 2022:
a. Custodian’s accountability was petty cash fund with an imprest balance of P15,000
and undeposited collections from December 27, 2022 to the date of count appearing
in the cash records at P72,000.
b. The items on hand on the count date were:
Currencies and coins P32,800
Checks:
Date Payor Payee
12/10 ABC Corp. – Hippolyta Corp. 20,000*
Customer 2,000
12/27 E. James – Hippolyta Corp. 12,000
Employee 15,000
12/28 DEF Co. – Customer Hippolyta Corp. 32,000
12/29 Hippolyta Corp. Marawi Co. – 19,000
Supplier
1/2 XYS Co – Customer Hippolyta Corp.
1/4 UVW Inc. – Hippolyta Corp.
Customer
*returned by the bank marked NSF
Petty cash expense vouchers:
Date Particulars Amount
12/28 Office repairs 2,100
12/28 Postage stamps 3,000
12/29 Officers’ meals 2,500
1/2 Gas and oil 2,000
Employee IOUs 1,500
Unused postage stamps 2,500
Petty cash receipt vouchers:
Date Particulars Amount
12/29 Employee contributions for 3,200
charity
12/30 Return of travel expense 500
advance

Page 6 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
Requirements:
37. What is the cash shortage/overage as a result from the cash count?
a. None c. 4,500
b. 2,900 d. 800

38. What is the adjusted petty cash fund balance as of December 31, 2022?
a. 3,100 c. 6,800
b. 5,100 d. 1,400

PROBLEM 3:
You are auditing the cash in bank balance of Etta Co. in line with your firm’s audit
of the entity’s financial statement as of and for the period ended December 31, 2022.
The following information are deemed relevant in your audit:
a. The bank statement for the month of December had the following information:
December 1, balance 2,580,000
Total bank credits 9,650,000
Total bank debits 8,990,000
December 31, balance ?

b. The November bank reconciliation statement prepared by the client included the
following reconciling items. November book reconciling items were eventually
recorded in the books where necessary in December.
• A note receivable amounting to P220,000 was collected by the bank in
November on the company’s behalf. Interest on the note which was also
collected by the bank was at P22,000.
• Total bank service charge for the month of November was P9,600.
• A collection check amounting to P90,000 was returned by the bank together
with the November bank statement and was marked NSF.
• Deposits in transit and outstanding checks by the end of November were at
P520,000 and P920,000, respectively.
• The company recorded a disbursement check at P125,000 in November. The
November bank statement showed the check clearing the bank at the correct
amount which was P152,000. The error was subsequently corrected by the
company in December.
c. Audit examination revealed the following December items:
• Deposits in transit and outstanding checks amounted to P786,000 and
P889,000, respectively.
• The bank erroneously credited the company P120,000 for a customer
collection of Atta Corp. The bank discovered and immediately corrected the
error in December.
• Bank also erroneously charged the company P86,000. The same has not been
corrected however by month end.
• Bank loan proceeds automatically credited to the company’s account by the
end of December was at P500,000. This has not been recorded in the books
yet.
• A P80,000 customer check was returned by the bank in December marked NSF.
The company redeposited the same check in December upon notifying the
customer and has since cleared the bank also in December. The company did
not record the checks return and redeposit anymore since the same will
have no effect to the cash balance.
• Bank service charge for the month of December was at P12,400.
d. The general ledger shows the following balances:
December 1, balance 2,064,600
December 31, balance 2,735,400

Requirements:
39. What is the correct cash in bank balance as of December 31, 2022?
a. 3,051,000 c. 3,223,000
b. 3,240,000 d. 3,137,000

40. What is the total cash debits appearing the company’s books for the month of
December?
a. 9,538,000 c. 9,796,000
b. 9,578,000 d. 9,458,000
Page 7 of 21 0915-2303213  [email protected]
 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

41. What is the total cash credits appearing the company’s books for the month of
December?
a. 8,993,600 c. 8,753,000
b. 8,532,800 d. 8,787,200

42. Which of the following will least likely appear in an audit program for the audit
of cash in bank accounts?
a. Verifying items listed as deposit in transit in the client-prepared
bank reconciliation statement have been processed as deposits on the
cutoff bank statement as these should appear chronologically on the
cut-off bank statement.
b. Determining whether checks processed in the cut-off bank statement with
dates after year-end, appears as outstanding checks in the client-
prepared bank reconciliation statement.
c. Confirmation with the bank regarding cash balances and liabilities to
the bank.
d. Preparing schedule of interbank transfers to verify that both sides of
the transfer are property accounted for and to detect any kiting.

PROBLEM 4:
In the course of your audit of Steve Company’s “Receivables” account as of December
31, 2022, you found out that the account comprised the following items:
Trade accounts receivable P1,550,000
Trade accounts receivable, assigned (proceeds from 750,000
assignment amounted to P650,000)
Trade accounts receivable, factored (proceeds from 300,000
factoring done on a without-recourse basis amounted
to P250,000
Trade notes receivable 200,000
Trade notes receivable, discounted (proceeds from 100,000
discounting done on a with-recourse basis amounted
to P80,000, Recourse obligation is considered
significant)
Trade receivables rendered worthless 50,000
Installments receivable, normally due 1 year to two 250,000
years
Customers’ accounts reporting credit 60,000
balances arising from sales returns
Customers’ accounts reporting credit balances 40,000
arising from advance payments
Cash advances to associate company 800,000
Claims from shipping company for damaged goods while 30,000
in-transit
Subscriptions receivable due in 60 days 400,000
Deposits on long term contract bids 200,000

Requirements:
43. How much is the total trade receivables?
a. 3,150,000 c. 3,050,000
b. 2,850,000 d. 2,750,000

44. How much is the amount to be presented as “trade and other receivables” under
current assets section of the statement of financial position?
a. 3,380,000 c. 3,280,000
b. 3,480,000 d. 4,280,000

PROBLEM 5:
The accountant of James Corp. presented the following reconciliation in line with your
audit of the company’s receivables for the period ended December 31, 2022:

Page 8 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

Balance per General Ledger P2,910,000

Invoice price of goods delivered on December 29. (80,000)
Received by the customer on December 31. Freight Term:
FOB Buyer
Invoice price of goods delivered on December 30. Goods (50,000)
still in transit as of December 31. Freight term: FOB
Destination
Invoice price of goods delivered on December 31. Goods 75,000
still in transit as of December 31. Freight term: FOB
Shipping Point
Customer collection check dated November 30, in payment (120,000)
of an Invoice dated October 20, returned by the bank
marked NSF
Customer collection check dated December 30, in payment 60,000
of an Invoice dated November 20
Customer collection check dated January 3, in payment 90,000
of an invoice Dated December 10
Credit memo for sales returns on sales invoice dated 20,000
August 4
Preference shares subscriptions receivable, Due March (250,000)
3, 2024
Write-off of worthless accounts (Sales invoice dates 76,000
April 10 – P44,000; July 20 – P32,000)
Balance per Subsidiary Ledger P2,731,000

Audit notes:
a. The accountant also prepared the following aging schedule based on the subsidiary
ledger and inquiries also revealed their estimation policy regarding the portion
estimated to be doubtful of collection:
Age Amount % Doubtful of
collection
Current (1-60 days) P1,120,000 2%
1-60 days past due (61-120 days) 650,000 10%
61-120 days past due (121-180 520,000 20%
days)
More than 120 days past due 441,000 40%
(>180 days)

b. The company sell under terms 5/20, n/60. The company further estimates per past
experience that 25% of the accounts that are current (1-60 days) will probably
be collected within the discount period.
c. The allowance for bad debts had a January 1, 2022 balance of P302,800. The
company had a P46,000 recovery of previously written-off accounts during the
year. There were write-off of accounts receivable during the year other than
that which appears in the reconciliation schedule.

Requirements:
45. What is the correct cash accounts receivable balance, gross of any allowances?
a. 2,795,000 c. 2,775,000
b. 2,990,000 d. 2,790,000

46. What is the correct amortized cost of accounts receivable as of December 31, 2022?
a. 2,424,550 c. 2,422,800
b. 2,440,550 d. 2,408,550

47. What is the correct bad debt expense for 2022?

a. 79,400 c. 75,400
b. 83,400 d. 67,400

48. Which of the following is the least concern of the auditor when auditing possible
overstatement error on receivables?
a. Ascertaining whether the billing department monitors the prenumbering
of the delivery receipt when preparing sales invoices.
b. Determining whether sales invoices are being reviewed and approved by
other than the preparer of the invoice to check on accuracy of the
prepared invoices.
Page 9 of 21 0915-2303213  [email protected]
 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
c. Determining that sales invoices are being prepared based on approved
sales order and delivery receipts and whether the documents are in
agreement before preparing the sales invoice.
d. Determining whether entries in daily sales summary and sales journals
corresponds to sales invoices, delivery receipts and sales orders which
are all in agreement.

PROBLEM 6:
The following aging schedule based on accounts receivable subsidiary ledger has been
prepared by the accountant of Trevor Corp. in line with your audit of its financial
statement for the period ended December 31, 2022:
Age Amount % Collectability
Current (1-60 days) P2,240,000 99%
1-60 days past due (61-120 days) 870,000 95
61-120 days past due (121-180 days) 740,000 80
More than 120 days past due (>180 days) 646,000 50

Audit notes:
a. A credit balance in one of the customer’s account amounting to P20,000 is included
in the current (1-60 days) account. This resulted from the customer cash advance
for a delivery to be made in 2023.
b. Another credit balance amounting to P28,000 resulting from a collection of a
previously written-off account is included in the current (1-60 days) account.
Investigation revealed that the client failed to reverse the write-off entry
upon recovery and recorded only the cash collection.
c. The unadjusted December 31, 2022 balance of the allowance for bad debts was at
P452,000.
d. The following exceptions were noted as a result of your accounts receivable
confirmation procedures:
Customer Amount Exception noted
per
Books
Diana Inc. P160,000 The customer claims the correct amount is P120,000.
The difference was for an invoice dated September
15 priced at P160 per unit whereas the agreement
per Sales Order was at P120 per unit. Client
acknowledges the invoice error.
Prince Co. 220,000 The customer claims the correct amount is at
P195,000. The difference was for a credit memo
issued in December for a sales returns in December.
The goods return was covered by a sales invoice
originally dated August 24. Investigation revealed
that the credit memo was recorded in January 2023.
Steve Co. 250,000 The customer claims that the amount is the total
selling price of goods they receive on consignment
from Trevor Corp. in December. Steve Co. further
reports that 40% of these goods remained unsold.
Commission rate as agreed upon between parties was
at 12% of the sales price. The client acknowledges
the customer’s report.
Barbra Inc. 60,000 No reply has been received from this customer even
with the second confirmation request sent. There
has been no evidence of subsequent collections
either. The client admits receivable are
worthless. Further investigation revealed that
outstanding invoices to this customer were all
dated April 2022.
Minerva Co. 120,000 The customer claims no amount owing to the client
as the customer has advanced P280,000 cash to the
client in December for all deliveries to be made
in December and January. Investigation revealed
that the P120,000 outstanding balance per books
was for a delivery made in December. The cash
advance was recorded by the entity as Cash Sales
in December. Client acknowledges the error.

Page 10 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
Requirements:
49. What is the correct cash accounts receivable balance, gross of any allowances?
a. 4,199,000 c. 4,137,000
b. 4,181,000 d. 4,149,000

50. What is the correct amortized cost of accounts receivable as of December 31, 2022?
a. 3,678,250 c. 3,683,000
b. 3,700,820 d. 3,801,800

51. What is the correct bad debt expense for 2022?

a. 78,000 c. 46,000
b. 18,000 d. 106,000

52. Which of the following is incorrect regarding the use of confirmation letters in
auditing receivables?

a. Confirmation of receivables is consistent with the auditor’s objective

of gathering evidence regarding the receivables existence/occurrence.
b. Positive confirmation requests is necessary where the auditor expects
based on past experience that there will be many exceptions.
c. Negative confirmation requests may be used by the auditor where control
risk assessment is placed at less than high level.
d. If no response is received to a negative confirmation letter, the
auditor should send a second confirmation request and perform
alternative procedures if still no response is received.

PROBLEM 7:
The following accounts were lifted form the unadjusted trial balance of Penny Corp. as
of December 31, 2022:
Cash P963,200
Accounts receivables 2,254,000
Inventory 6,050,000
Accounts payable 4,201,000

During your audit, you noted that Penny Corp. held its cash books open after year
end. In addition, your audit revealed the following information:

a. Receipts for January 2023 of P654,600 were recorded in December 2022 cash receipts
journal. The receipts of P360,100 represent cash sales and P294,500 represent
collections of receivables from customers, net of 5% cash discount.

b. Accounts payable of P372,400 was paid in January 2023. The payments, on which
discounts of P12,400 were taken, were included in the December 2022 check
register.

c. Merchandise inventory resulted from a physical count conduced on December 30,

2022. The following information has been discovered relating to certain
inventory transactions.
• Goods invoiced at P275,000 were shipped on consignment to a customer on
December 28 and was recorded as sales on account. Cost goods was at
P210,000.

• Goods costing P216,000 were received from a vendor on January 4, 2023. The
related invoice was received and recorded on January 6, 2023. The goods
were shipped on December 31, 2022, terms FOB shipping point.

• Goods with the sales invoice price of P637,500 were shipped and recorded
on December 31, 2022, and were received by the customer on January 3,
2023. The terms of the invoice were FOB shipping point. The goods costing
P520,000 were included in the 2022 ending inventory physical count on
December 30.

Page 11 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
Requirements: Based on the above information and the result of your audit, what are
the adjusted balances of the following accounts:
53. Cash
a. 963,200 c. 668,600
b. 681,000 d. 688,600

54. Accounts receivable

a. 2,908,600 c. 2,289,000
b. 2,564,000 d. 2,548,500

55. Inventory
a. 5,956,000 c. 5,860,000
b. 6,035,000 d. 6,080,000

56. Accounts payable

a. 4,789,400 c. 4,790,900
b. 4,603,500 d. 4,573,000

57. Which of the following audit procedures would the auditor least likely perform
in auditing inventories for possible overstatement error?
a. Attending and observing physical count of inventories conducted by the
client.
b. Performing test counts for a sample of the prenumbered inventory tags,
trace these counts not the client’s count sheets and to the client’s
final inventory listing.
c. Selecting items on the client’s final inventory listing, which is
essentially the subsidiary ledger for the adjusted general ledger
balance, and then agreeing those selected items to the inventory count
tags noted as a result of the auditors test counts.
d. Performing cut off procedures on sales and purchases made before and
after year-end to ascertain whether items were included in the physical
count for those that are not yet valid sales as at year end and those
that are already valid purchases as at year end.

PROBLEM 8:
The following resulted from you audit staff’s sales cut-off procedures, in line with
your audit of Funko Inc.’s financial statements for the period ended December 31, 2022:
December Sales Journal Entries
SI Delivery Amount Remarks
Number Date
21091 Dec. 27 P56,000 FOB Destination
21092 Dec. 28 120,000 Shipped to Consignee
21093 Dec. 29 90,000 FOB Destination (Still in-transit as of
Dec. 31)
21094 Dec. 31 42,000 FOB Shipping Point (Still in-transit as of
Dec. 31)
21095 Dec. 31 58,000 FOB Buyer’s Warehouse (Still in-transit as
of Dec. 31)
21096 Jan. 1 60,000 FOB Supplier’s Warehouse
January Sales Journal Entries
SI Delivery Amount Remarks
Number Date
21097 Dec. 30 P90,000 FOB Shipping Point (Still in-transit as of
Dec. 31)
21098 Jan. 2 80,000 FOB Shipping Point
21099 Jan. 2 58,000 Sold under bill and hold agreement in Dec.
21100 Jan. 3 100,000 FOB Destination

Audit notes:
a. Physical count of goods was conducted by the client on December 30, 2022.
As a result all goods delivered on or before December 30 were no longer
included in the physical count.
b. Gross profit rate on all sales was at 30%.
c. The consignee’s report regarding SI 21092 disclosed that 60% of the goods
covered by the invoice remained unsold. Commission rate as agreed upon
with the consignee was at 10% of sales price.

Page 12 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

Requirements: Based on the above information and the result of your audit, what are
the net adjustments to the following:
58. Accounts receivable
a. 76,800 credit c. 136,800 credit
b. 132,000 credit d. 88,600 credit

59. Inventory
a. 84,000 debit c. 72,800 debit
b. 43,400 debit d. 7,000 credit

60. Net Income

a. 88,600 decrease c. 93,400 decrease
b. 35,400 decrease d. 110,800 decrease

PROBLEM 9:
You were assigned to audit the Property, plant and equipment accounts of your firm’s
continuing audit of the financial statement of Houston Corp. for the period ended
December 31, 2022. The following schedule was derived from your prior year working
papers:
December 31, 2021
Cost
Land P2,500,000
Building 5,200,000
Factory Machineries 4,800,000
Office Equipment 3,500,000
Accumulated Depreciation
Building (1,411,429)
Factory Machineries (2,342,400)
Office Equipment (945,000)
Net P11,301,171

Audit notes:
a. The company’s depreciation policy are as follows:
Building SYD, 20 years (no salvage value)
Factory Double Declining Balance, 10 years
Machineries (10% salvage value based on cost)
Office Equipment Straight-line method, 10 years
(10% salvage value based on cost)
The assets were acquired during the company’s inception of operation at the beginning
of 2019.

b. In line with your audit examination, you requested a schedule of property

additions and repairs and maintenance for the year. The following schedules as
a result were made available:
Schedule of Property Additions
December 31, 2022
Date Particulars Amount
Mar. 2 Additional Factory Machinery (note c) P2,050,000
Jun. 30 Repairs on Office Equipment 200,000
Sept. 30 Additional Office Equipment (note d) 800,000
Dec. 1 Repainting cost on the Building 120,000

Schedule of Repairs and Maintenance Expense

December 31, 2022
Date Particulars Amount
Jan. 2 Installation of a new elevator system P1,200,000
in the building (note e)
Jan. 2 2-year maintenance contract for 500,000
factory machineries

c. Investigations revealed that the additional factory machinery was acquired on

March 2 on installment basis. The installment price of P2,000,000 is payable at
the rate of P500,000 annually starting March 2, 2022. Cash price of the factory
machinery was at P1,600,000. Freight and installation cost amounted to P50,000.

Page 13 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
d. The additional office equipment were acquired on account on September 30, 2022
under the terms 10/20, n/60. By the end of the year, the amount payable is yet
to be settled by the company. Invoice price of the equipment was at P800,000.

e. The installation of the new elevator system was settled in cash totaling to
P1.2M. It was ascertained that the elevator system will be useful over the
remaining life of the Building.

Requirements:
61. What is the correct depreciation expense on the Building (including Building
Improvements, if any) for 2022?
a. 554,286 c. 518,095
b. 420,952 d. 502,596

62. What is the carrying value of the Factory Machineries as of December 31, 2022?
a. 3,368,580 c. 3,341,080
b. 3,651,972 d. 3,430,180

63. What is the correct accumulated depreciation balance for the Office Equipment as
of December 31, 2022?
a. 1,260,000 c. 1,278,000
b. 1,276,200 d. 1,324,800

64. What is the correct repairs and maintenance expense for 2022?
a. 820,000 c. 620,000
b. 870,000 d. 570,000

PROBLEM 10:
The long-lived assets and related accounts of Foo Inc. had the following balances as
of January 1, 2021:

PPE Cost Accumulated

Depreciation
Land P350,000
Building, 150% declining balance, 20 years 4,500,000 1,050,000
Machinery and equipment, straight line, 10 years 1,160,000 405,000
Automobiles, 150% declining balance, 3 years 1,800,000 900,000

INTANGIBLES Cost Accumulated

Amortization
Patent 1,920,000 240,000

Review of transactions during the period revealed the following information:

a. The patent was as a result of internal development. The cost amounting to
P1,920,000 included research costs amounting to P290,000 and development
costs amounting to P430,000. The balance was the costs related to the
registration and processing the patent application with the government
which it approved at the beginning of 2020. It was estimated that the
patent will have a useful life of 16 years. On January 1, 2022, the
company determined that the useful life of patent was only eight years
from the date of grant.

b. On January 1, 2022, in connection with the purchase of a trademark from

Fighter Corp., the parties entered into a noncompetition agreement and
consulting contract. The company paid Fighter Corp. P800,000, of which
three-fourths was for the trademark, and one-fourth was for the agreement
not to compete for a five-year period in the line business covered by the
trademark. The company considers the life of the trademark to be
indefinite.

c. On June 30, 2022, a machine purchased for P60,000 on January 1, 2021, was
sold for P36,000.

Page 14 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam
d. On September 30, 2022, the company purchased a new automobile for P460,000
cash and trade-in of an automobile purchased for P540,000 on January 1,
2021. The new automobile has a cash price of P620,000.

e. On November 1, 2022, Foo Inc. acquired a tract of land with an existing

building in exchange for 10,000 shares of Foo Inc.’s P20 par value share
capital that had a market price of P38 per share on this date. Foo Inc.
paid legal and other directly attributable cost to the acquisition totaling
P25,000. The last property tax bill indicated assessed values of P240,000
for land and P60,000 for building. Shortly after the acquisition, the
building was razed at a cost of P45,000 in anticipation of new building
construction within the year.

65. How much is the total land to be reported in the company’s December 31, 2021
balance sheet?
a. 710,000 c. 674,000
b. 800,000 d. 660,000

66. What is the total depreciation expense on Machinery and equipment in 2022?
a. 113,000 c. 110,000
b. 116,000 d. 100,000

67. How much is the carrying value of the Automobiles to be presented in the December
31, 2022 statement of financial position?
a. 1,335,000 c. 885,000
b. 857,500 d. 846,000

68. What is the total amortization expense on all intangibles for the period?
a. 215,000 c. 320,000
b. 330,000 d. 250,000

69. Assuming that the remaining annual net cash flows expected from the patent,
noncompeting agreement and trademark are P158,278, P78,868 and P55,000
respectively, and assuming further that the prevailing market rate of interest at
the end of the year is 10%, what is the total impairment loss in intangibles for
2022?
a. 275,000 c. 325,000
b. 350,000 d. 415,000

70. Where few property additions and disposals are expected to have occurred during
the year, your audit plan and direction for auditing property plant and equipment
and intangibles would involve:
a. A preliminary understanding of the client’s internal control over the
acquire to retire business process and an extensive substantive test
of transactions for property additions and disposals during the year.
b. A complete examination of the effectiveness of internal controls over
the acquire to retire business process and a less extensive substantive
test of account balance for PPE and Intangibles as at the end of the
year.
c. A preliminary understanding of the client’s internal control over the
acquire to retire business process and a less extensive substantive
test of account balance for PPE and Intangibles as at the end of the
year.
d. A complete examination of the effectiveness of internal controls over
the acquire to retire business process and an extensive substantive
test of transactions for property additions and disposals during the
year.

- END of EXAMINATION -

Page 15 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

ANSWERS & SOLUTIONS/CLARIFICATIONS

1 B 26 A 51 A
2 A 27 B 52 D
3 C 28 D 53 C
4 A 29 B 54 C
5 D 30 D 55 A
6 C 31 B 56 A
7 B 32 B 57 B
8 A 33 B 58 C
9 C 34 A 59 B
10 A 35 B 60 C
11 D 36 A 61 A
12 B 37 D 62 C
13 A 38 B 63 B
14 B 39 C 64 D
15 C 40 D 65 C
16 C 41 D 66 A
17 A 42 B 67 B
18 C 43 B 68 A
19 A 44 C 69 C
20 C 45 C 70 A
21 A 46 D
22 D 47 A
23 A 48 A
24 C 49 B
25 D 50 C

PROBLEM 1: ANTIOPE INC.

36. A
Current Account at BPI 6,000,000
Overdraft (cash management policy) (300,000)
Payroll account 1,500,000
Bank drafts 30,000
Traveler's checks 150,000
Money orders 90,000
Petty cash fund, adjusted balance 10,200
Treasury bills, due 1/31/23 900,000
Change fund 10,000
Total Cash and Cash Equivalents 8,390,200

PROBLEM 2: HIPPOLYTA CORP.

37. D
Count date: January 3, 2023
Accountability
Petty cash fund 15,000
Undeposited collections 72,000
Petty cash receipt vouchers 3,700
Total Accountability 90,700

Valid supporting items:

Cash items
Currencies 32,800
Accommodated check (E. James) 2,000
Collection Checks
DEF Corp. (dated 12/28) 12,000
XYS Co. (dated 1/2) 32,000 78,800
Non cash items
Petty cash expense vouchers 9,600
Employee IOUs 1,500 11,100 89,900
SHORTAGE 800

Page 16 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

Adjusting Entry:
Expenses (Up to 12/31) 7,600
Receivable from employees 1,500
PC Shortage 800
Petty cash fund 9,900
38. B.
Petty cash fund, imprest balance 15,000
Net adjustment (as of 12/31) (9,900)
Petty cash fund, adjusted balance 5,100

Alternative Solution:
Cash on hand as of January 3 78,800
Less: Undeposited collection (72,000)
PC receipt vouchers (3,700)
Add: PC expense voucher dated Jan. 2,000
Petty cash fund, adjusted balance 5,100
PROBLEM 3: ETTA CO.
39. C.; 40. D.; 41. D.
Proof of Cash
November Receipt Disbursements December
Balances per bank statement 2,580,000 9,650,000 8,990,000 3,240,000
Deposit in transit - November 520,000 (520,000)
- December 786,000 786,000
Outstanding check - November (920,000) (920,000)
- December 889,000 (889,000)
Bank error-December; Corrected
in December (120,000) (120,000)
Bank error-December; Not yet
corrected (86,000) 86,000
Adjusted balances 2,180,000 9,796,000 8,753,000 3,223,000

Balances per books 2,064,600 9,458,000 8,787,200 2,735,400

Unrecorded bank credit -
November 242,000 (242,000)
- December 500,000 500,000
Unrecorded bank debit -
November (9,600) (9,600)
(90,000) (90,000)
- December 12,400 (12,400)
NSF check - returned and
redeposited in Dec. 80,000 80,000
Book error - November;
Corrected - December (27,000) (27,000)
Adjusted balances 2,180,000 9,796,000 8,753,000 3,223,000

42. B
PROBLEM 4: STEVE COMPANY
43. B. Non-trade Non-trade
Trade receivable (current) (Noncurrent)
Trade accounts 1,550,000
Trade accounts, assigned 750,000
Trade notes receivables 200,000
Trade notes receivable, discounted
(as a loan) 100,000
Installment receivable 250,000
Cash advances to associates 800,000
Claims from shipping companies 30,000
Subscriptions receivable - current 400,000
Deposits on long term contracts 200,000

Total 2,850,000 430,000 1,000,000

Page 17 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

44. C.
Trade receivables 2,850,000
Non-trade (current) receivables 430,000
Trade and other receivables - Current 3,280,000

PROBLEM 4: JAMES CORP.

45. C.
46. D.
61-120 121-180
General Subsidiary 1-60 days days days >180 days

Unadjusted balances 2,910,000 2,731,000 1,120,000 650,000 520,000 441,000

Goods delivered Dec. 29 (Valid sale) 80,000 80,000
Sale in transit, FOB Dest. (Not valid
sale) (50,000)

Sale in transit, FOB SP (Valid sale) 75,000

NSF collection check (Not valid
collection) 120,000 120,000
Collection check dated 12/30 (Valid
collection) (60,000) (60,000)
Post-dated collection check (Not
valid coll.) 90,000
Sales returns (20,000) (20,000)

Subscriptions receivable (250,000)

Write-off of receivables (76,000) (32,000) (44,000)

Adjusted balances 2,775,000 2,775,000 1,140,000 770,000 468,000 397,000

Allowance for bad debts in % 2% 10% 20% 40%
Allowance for bad debts in PhP (352,200) 22,800 77,000 93,600 158,800
Allowance for sales returns
(1,140K*25%*5%) (14,250)
Amortized Cost 2,408,550

47. A.
Allowance for bad debt, end 352,200
Add: Write-off of receivables 76,000
Less: Recovery of previous write-offs (46,000)
Allowance for bad debt, beg (Jan. 1) (302,800)
Bad debt expense 79,400
48. A.
PROBLEM 6: TREVOR CORP.
49. B.
50. C. Total 1-60 days 61-120 days 121-180 days >180 days
Unadjusted balances 4,496,000 2,240,000 870,000 740,000 646,000
Cr. Bal. - customer adv. 20,000 20,000
Cr. Bal - recovery from
previous write-off 28,000 28,000
Diana Inc. (40,000) (40,000)
Prince Co. (25,000) (25,000)
Steve Co. - unsold goods out
on consignment (100,000) (100,000)
Steve Co. - commission on
sold goods (18,000) (18,000)
Barbra Co. - write-off of
receivable (60,000) (60,000)
Minerva Co. (120,000) (120,000)
Adjusted balances 4,181,000 2,050,000 830,000 715,000 586,000
Allowance for bad debt in % 1% 5% 20% 50%
Allowance for bad debt in PhP (498,000) 20,500 41,500 143,000 293,000
Amortized Cost 3,683,000

Page 18 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

51. A.
Allowance for bad debt, end 498,000
Add: Write-off of receivables per audit 60,000
Less: Recovery of previous write-offs per audit (28,000)
Allowance for BD, unadjusted ending bal. (452,000)
Bad debt expense 78,000

52. D.

PROBLEM 7: PENNY CORP.

53. C.
54. C.
55. A.
56. A.
Cash Receivables Inventory Accounts Payable
Unadjusted balances 963,200 2,254,000 6,050,000 4,201,000
2023 cash sales recorded in 2022 (360,100)
2023 collection of AR recorded in 2022
Gross of Sales Discount
(294,500/95%) (294,500) 310,000
2023 payment of AP recorded in 2022
Net of Purchase Discount (372,400-
12,400) 360,000 372,400
Goods out on consignment (275,000) 210,000
Purchase in transit - FOB Shipping Point 216,000 216,000
Sales in transit - FOB Shipping Point (520,000)
Adjusted Balances 668,600 2,289,000 5,956,000 4,789,400

57. B.

PROBLEM 8: FUNKO INC.

58. C.
59. B
60. C. Accounts Receivable Inventory Net Income
21092 Shipment to consgnee
Adjustement to AR/Sales
(120,000*60%) (72,000) (72,000)
Commission on portion sold
(120K*40%*10%) (4,800) (4,800)
Adjustment to Inventory
(120K*60%)*70% 50,400 50,400
21093 Sales in Transit: FOB Destination (90,000) 63,000 (27,000)
21094 Sales in Transit: FOB SP
(delivered after count) (29,400) (29,400)
21095 Sales in Transit: FOB Buyer
(delivered after count) (58,000) (58,000)
21096 2023 Shipment (60,000) (60,000)
21097 Sales in Transit: FOB SP 90,000 90,000
21099 Bill and Hold agreement in 2022 58,000 (40,600) 17,400
Net Adjustment (136,800) 43,400 (93,400)

PROBLEM 9: HOUSTON CORP.

61. A.
Building: SYD, 20 years (no salvage value)
Depreciation for 2022:
On Opening Bal: 5.2M*(17/210) 420,952
On Addition/Elevator System:
1.2M*(17/153) 133,333
Total 554,286

Page 19 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

62. C.
Factory Machineries, Cost (12/31/22)
Balance, January 1 4,800,000
Addition, Mar 2 1,650,000
Total 6,450,000
Accum. Deprecition, January 1 (2,342,400)
Depreciation expense, 2022** (766,520)
(3,108,920)
Carrying Value, 12/31/22 3,341,080

**Depreciation for 2022

Opening Bal (4.8M*80%^3)*20% 491,520
Addition (1.65M*20%)*10/12 275,000
Total 766,520

63. B.
Office Equipment, Accum. Depr, Jan. 1 945,000
Depreciation for 2022** 331,200
Office Equipment, Accum. Depr., Dec. 31, 2022 1,276,200

**Depreciation for 2022

Opening Bal (3.5M*90%)/10 315,000
Addition (720,000*90%)/10*3/12 16,200
Total 331,200

64. D.
Jun. 30 Repairs on Office Equipment 200,000
Dec. 1 Repainting cost on the Building 120,000
Jan. 2 2-year maintance contract for machinery
Expense for 2022 (500,000/2years) 250,000
Total Expense 570,000

PROBLEM 10: FOO INC.

65. C.
Land, Beginning Balance 350,000
Acquisition during 2022:
FMV of shares issued (10,000*P38) 380,000
Legal fees and other DACs 25,000
Total 405,000
Amount allocable to Land (240,000/300,000) 80% 324,000
Land, Ending Balance 674,000

66. A.
Depreciation on:
Disposal on 6/30: 60,000/10yrs*6/12 3,000
Balance: 1.1M/10yrs 110,000
Total Depreciation on Machinery and Equipment 113,000

67. B.
Cost, Decemer 31, 2022
Beginning Balance 1,800,000
Cost of disposed automobile on Sept. 30 (540,000)
Cost of new automobile on Sept. 30 620,000 1,880,000
Accum. Depr., Dec. 31, 2022
Beginning Balance 900,000
AD of disposed automobile on Sept. 30* (371,250)
Depreciation at year-end** 493,750 1,022,500
Carrying Value of Automobiles, Dec. 31, 2022 857,500

Page 20 of 21 0915-2303213  [email protected]

 AUDITING
ReSA Batch 45 – May 2023 CPALE Batch
11 February 2023  11:45 AM to 02:45 PM AUD First Pre-Board Exam

*AD of disposed auto on Sept. 30

Depreciation in 2021 (540,000*50%) 270,000
Depreciatoin in 2022 (270,000*50%)*9/12 101,250
371,250

**2022 Depreciation on Automobiles

Deprecation on:
Disposal on 9/30 (270,000*50%)*9/12 101,250
Newly Acquired on 9/30 (620,000*50%)*3/12 77,500
Balance*** (630,000*50%) 315,000
Total Depreciation Expense in 2022 493,750

CV of the beginning balance (1.8M-900K) 900,000

Less: CV of the diposed asset at the beg.
(540K-270K) 270,000
CV of the balance at the beg of the year 630,000 ***

68. A.
Amortization on Patent
Correct CV of Patent, 1/1/2022
(1,200,000*14/16) 1,050,000
Divide by remaining life: (8yrs-2yrs) 6 175,000
Amortization on Noncompetition Agreement
(800,000*1/4)/5years 40,000
Total Amortization in 2022 215,000

69. C.
Patent CV, 12/31/22 (1,050,0000-175,000) 875,000
Recoverable Amount/Value in Use 600,000
Impairment loss on Patent 275,000

Noncompeting agreement, 12/31/22 (200K-

40K) 160,000
Recoverable Amount/Value in Use 250,000
Impairment loss on Patent None

Trademark (no definite life), 12/31/22 600,000

Rec. value/PV of net cash flows in perpetuity
(55,000/10%) 550,000
Impairment loss on Trademark 50,000

Total Impairment Loss 325,000

70. A.

Page 21 of 21 0915-2303213  [email protected]