Auditing and Assurance
Case 1 Ash Company manufactures three (3) models of gear shift components for bicycles that are sold to bicycle manufacturers. retailers. and eetalog outlets. Since its inception. Ash has used normal absorption costing and has assumed first-in. first-out (FIFO) cost flow in its perpetual inventory system. The balances of the inventory accounts at the end of Ash's scal year. September 30. 201 A. are shown below. The inventories are stated at cost before any year-end adiustrnents: Finished goods P3.882.000 Work in process 675.000 Raw materials P1,584.000 Factory supplies 414.000 1. The finished goods inventory consists of the items analyzed below: Cost Net Reallzable Value (NRV) Down tube shifter Standard model P405000 P402.000 Click adjustment model 56?.000 534.000 Deluxe model 648.000 660 000 Total down tube shifters P1 ,620.000 1.596.000 Bar end shifter Standard model 498.000 540.300 Click adiustment model 594 000 585.300 Total bar end shifters 1.092.000 1.125.600 Head tube shifter Standard model 468.000 465.900 Click adiustment model 702,000 715,600 Total head tube shifters 1 170 000 1 181 700 Total finished goods P3382300 P3.903,300 One-half of the head tube shifter nished goods invemory is held by catalog outlets on consignment. Three-quarters of the bar end shifter finished goods inventory had been pledged as collateral for a bank loan. 4. One-fourth of the raw materials balance represents derailleurs acquired at a contracted price of 10% above the NRV. The NRV of the rest of the raw materials is P1.190,600. The total NRV of the work in process inventory is P680.000. Included in the cost of factory supplies are obsolete items with historical cost of P25.200. The net realizable value of the factory supplies is P395400. 7. Ash applies the lower of cost or net realizable value (LCNRV) method to each 0 the three (3) types of shifters in finished goods inventory. For each of the other three (3) inventory accounts, Ash applies the LCNRV method to the total of each inventory account. 8. Consider all amounts presented above to be material in relation to Ash's nancial statements taken as a whole. 9'!\" 935-" Based on the preceding information. determine the proper values of the following on September 30. 201A. 1. Finished goods inventory 2. Work in process inventory 3. Raw materials inventory 4. Factory supplies inventory Case 2 In testing the sales cutoff for Luna Company in connection with an audit for the year ended October 31, 201A, you found the following information: A physical inventory was taken as of the close of business on October 31, 201A. All customers are within a three-day delivery area of the company's plant. The unadjusted balances of Sales and Inventories are P7,500,000 and P330,000, respectively. Invoice FOB Terms Date Shipped Date Sales Cost number Recorded 0011 Destination Oct. 20 Oct. 31 P3,000 2,700 0012 Shipping point Oct. 31 Nov. 2 7.500 6,000 0013 Shipping point Oct. 25 Oct. 31 5,400 3,600 0014 Destination Oct. 31 Oct 29 12,600 9,300 0015 Destination Oct. 31 Nov. 2 27,600 24,000 0016 Shipping point Nov. 2 Oct. 23 19,500 15,300 0017 Shipping point Nov. 5 Nov. 6 22,500 17,400 0018 Destination Oct. 25 Nov.3 11,700 6,000 0019 Shipping point Nov. 4 Oct. 3 25,800 24,600 0020 Destination Nov. 5 Nov. 2 15,000 12,000 Based on the foregoing information, compute the October 31, 201A adjusted balances of the following accounts: 5. Sales 6. Inventories Case 3 The following information was provided by the bookkeeper of Sol Company. 1. Sales for June totaled 286,000 units. 2. The following purchases were made in June: Date Quantity Unit cost June 4 50,000 P13.00 8 62,500 12.50 11 75,000 12.00 24 70,000 12.40 3. There were 108,000 units on hand on June 1 with a total cost of P1,450,000 Sol Company uses a periodic FIFO costing system. The company's gross profit for June is P2,058,750. Required 7. How many units were on hand on June 30? 8. What is the FIFO cost of the company's inventory on June 30? 9. What is the total cost of goods sold in June? 10. The 286,000 units sold in June had a unit selling price of
