NFJPIA MOCK BOARD2014AUDITING PROBLEMSUse The Following

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NFJPIA MOCK BOARD2014
AUDITING PROBLEMS
Use the following information for the next two items
GIL Company’s December 31 year-end financial statements contained the following errors

December 31, 2013
December 31, 2014
Ending inventory
P91,000 overstated
P61,000 understated
Accounts payable
P54,000 understated
P62,000 overstated
Depreciation expense
P23,000 understated
-

An insurance premium covering years 2013, 2014 and 2015 amounting to P135,000 was prepaid and expensed in full in 2013. Increase in fair value on FVOCI investment amounting to P52,000 and P38,790 for 2013 and 2014, respectively, were included in profit or loss. 1. What is the under/overstatement of GIL’s assets as of December 31, 2013 due to the errors? a. P24,000 over

b. P69,000 over
c. P1,000 over
d. P114,000 over

2. What is the under/overstatement of GIL’s working capital as of December 31, 2013 due to the errors? a. P100,000 under
b. P100,000 over
c. P55,000 under
d. P55,000 over

Use the following information for the next five items

Cloud Nine Corporation manufactures and sells food products and food processing machinery. Its balance sheet date is December 31. Relevant extracts from its financial statements at December 31, 2013 are as follows:

Current liabilities
Provision
Provision for warrantiesP270,000
Noncurrent liabilities
Provision
Provision for warranties180,000

Note 36 - Contingent Liabilities

Cloud Nine is engaged in litigation with various parties in relation to allergic reactions to traces of peanuts alleged to have been found in packet of fruit gums. Cloud Nine strenuously denies the allegations and, as at the date of authorizing the financial statements for issue, is unable to estimate the financial effect, if any, of any costs or damages that may be payable to the plaintiffs.

The provision for warranties at December 31, 2013 was calculated using the following assumptions: There was no balance carried forward from the prior year.

Estimated cost of repairs - products with minor defectsP1,000,000 Estimated cost of repairs - products with major defectsP6,000,000 Expected % of products sold during 2013 having no defects in 201480% Expected % of products sold during 2013 having minor defects in 201415% Expected % of products sold during 2013 having major defects in 20145% Expected timing of settlement of warranty payments - those with minor defectsAll in 2014 Expected timing of settlement of warranty payments - those with major defects40% in 2014, 60% in 2015

During the year ended December 31, 2014, the following occurred:

1. In relation to the warranty provision of P450,000 at December 31, 2013, P200,000 was paid out of the provision. Of the amount paid, P150,000 was for products with minor defects and P50,000 was for products with major defects, all of which related to amounts that had been expected to be paid in 2014.

2. In calculating its warranty provision for December 31, 2014, Cloud Nine made the following adjustments to the assumptions used for the prior year:

Estimated cost of repairs - products with minor defectsNo change Estimated cost of repairs - products with major defectsP5,000,000 Expected % of products sold during 2014 having no defects in 201585% Expected % of products sold during 2014 having minor defects in 201513% Expected % of products sold during 2014 having major defects in 20152% Expected timing of settlement of warranty payments - those with minor defectsAll in 2015 Expected timing of settlement of warranty payments - those with major defects20% in 2015, 80% in 2016 3. Cloud Nine determined that part of its plant and equipment needed an overhaul - the conveyor belt on one of its machines would need to be replaced in about December 2015 at an estimated cost of P250,000. The carrying amount of the conveyor belt at December 31, 2013 was P140,000. Its original cost was P200,000.

4. Cloud...
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