University of Nueva Caceres

College of Business and Accountancy

BS Accountancy
Qualifying Examination
AUDITING AND ASSURANCE: CONCEPTS AND APPLICATIONS 1
General instructions: Choose the correct answer.
Practical (12 points)
In items 1-2: An aging of Carlyn Company’s account receivable on December 31, 2021, reveals the
following information:
Time Outstanding % of Uncollectibility Amount of Account Receivable

Under 30 days 1.5% P112,000

30-60 days 3% 23,000

61-120 days 15% 18,000

121-180 days 30% 8,000

Over 180 days 60% 2,000

Total P163,000
Allowance for doubtful accounts before adjustments has P890 debit balance.
1. What amount should be presented as account receivable in the financial statement? (Easy)
a. P11,000
b. P12,670
c. 10,670
d. P11,780
2. What amount is to be recognized as bad debts expense? (Easy)
a. P11,780
b. P12,670
c. P13,560
d. P10,670
In items 3-5: In conducting your audit of Expert Corporation, a company engaged in import and
wholesale business, for the fiscal year ended June 30, 2021, you determined that its internal control
system was good. Accordingly, you observed the physical inventory at an interim date, May 31, 2021
instead of June 30, 2021.
You obtained the following information from the company’s general ledger:
Sales for eleven months ended May 31, 2021 P672,000

Sales for fiscal year ended June 30, 2021 768,000

Purchases for eleven months ended May 31, 2021 (before any 540,000
adjustments)

Purchases for the fiscal year ended June 30, 2021 640,000

Inventory, July 1, 2020 70,000

Physical inventory, May 31, 2021 110,000

Your audit disclosed the following additional information:
● Shipments costing P6,000 were received in May and included in the physical inventory but
recorded as June purchases.
● Deposit of P2,000 made with the vendor and charged to purchases in April 2021. Product was
shipped in July 2021.
● A shipment in June was damaged through the carelessness of the receiving department. This
shipment was later sold in June at its cost of P8,000.
In audit engagements in which interim physical inventories are observed, a frequently used auditing
procedure is to test the reasonableness of the year-end inventory by application of gross profit ratios.
3. The cost of goods sold during the month of June 2021 using the gross profit ratio method is?
(Average)
a. P22,000
b. P44,000
c. P74,000
d. P88,000
4. The June 30, 2021 inventory using the gross profit method is? (Average)
a. P88,000
b. P114,000
c. P174,000
d. P130,000
In items 5-6: At December 31, 2020, Lea Company properly reported the following trading equity
securities:
Cost Market value

ABC Corporation, 1,000 shares, preference shares P40,000 P30,000

XYZ, Inc., 6,000 shares, ordinary shares 60,000 90,000

LMN Co., 2,000 shares, ordinary shares 55,000 80,000

Total P155,000 P200,000

During 2021, the following transactions occurred among others:
January 5 - Acquired 8,000 shares of STY, Co. for P880,000 incurring additional P10,000 for
brokerage and another P10,000 for commission. These shares are to be initially recognized as trading
securities.
February 14 - Received dividends from STY, Co., declared January 10, 2021, P16,000
March 18 - Received dividends of P2 per share from XYZ Inc.
November 15 - Sold 2,500 shares of XYZ Inc. for P50,000. Commissions and taxes for P5,000 were
paid for the sale.
December 15 - Recorded transfer of all remaining XYZ Inc. shares to FVOCI when the fair value was
P14.
On December 31, 2021, the following are the available market values per share:
● ABC Corporation, preference shares, P50
● XYZ Inc., ordinary shares, P15
● LMN Co., P45
● STY Co., P100
5. What is the unrealized gain (loss) and where it is presented? (Easy)
a. P50,000 gain to the income statement
 b. P50,000 loss to the income statement
c. P37,500 gain to the balance sheet
d. P37,500 loss to the balance sheet
6. What is the total adjusted carrying value of the investments at the end of the year? (Easy)
a. P992,500
b. P1,062,500
c. P1,026,500
d. P1,025,000
In items 7-8: The following information was obtained in connection with the audit of Asuncion Co’s
cash account as of December 31, 2021:
● Cash balance per ledger on December 31 was P37,500. The company recorded actual
company collections amounting to P152,500 from its customers during December. Also in
December, the company recorded bank service charges of P2,500, including November bank
service charges of P1,500. The December bank statement showed total deposits credited by
the bank of P145,000 and total checks paid amounting to P133,750 and bank service charges
of P3,250.
● The Outstanding checks on November 30 and December 31 were P16,250 and P12,500
respectively while deposit in transit on November 30 was P12,500.
● The cash receipts book of December is under-footed by P2,500.
● The bank erroneously charged the company’s account for a P3,750 check for another
company. This bank error was corrected in January 2022.
7. What is the adjusted cash in bank balance on December 31, 2021? (Average)
a. P26,500
b. P37,500
c. P37,750
d. P26,750
8. What is the adjusted cash in bank balance on November 30, 2021? (Average)
a. P18,500
b. P14,750
c. P12,250
d. P17,450
In items 9-10: Cabrera Company purchased real property for P8,600,000 which included P180,000 of
realty tax arrears for prior years. A mortgage of P4,000,000 was assumed by the company on the
purchase. Twenty percent of the purchase price should be allocated to the land and the balance to the
building. In order to make the building suitable for the use of Cabrera Company, remodeling costs had
to be incurred in the amount of P990,000. This, however, necessitated the demolition of a portion of
the building, which resulted in recovery of salvage materials sold for P30,000 cash.
Landscaping and parking cost the company a total of P320,000, while repairs in the main hall were
P45,000.
9. How much is the cost of the land? (Average)
a. P1,664,000
b. P1,720,000
c. P2,040,000
d. P2,400,000
10. How much is the cost of the building? (Average)
a. P6,330,000
b. P7,795,000
c. P7,750,000
 d. P7,975,000
In items 11-12: On January 1, 2019, CRLN Company acquired a 4-year bond with a face value of
P4,000,000 for P3,756,920. The stated interest is 10% per year payable annually on December 31.
The bonds were acquired to yield 12% . The bonds are to be appropriately held and measured at
amortized cost.
On December 31, 2020, after receiving the interest, the issuer of the financial instrument is in
financial difficulties and it becomes probable that an impairment loss should be recognized. The
company assesses that only the principal amount will be received on the maturity date. On that date,
the prevailing interest rate is 14%. The present value of the future cash flows based on 14% is
P3,078,000 while the present value of expected cash flows for the remaining period using 12% is
P3,188,800.
11. How much is the impairment loss in 2020? (Average)
a. 0
b. P675,880
c. P786,680
d. P110,800
12. How much is the interest income for 2021? (Average)
a. P430,920
b. P421,070
c. P471,599
d. P382,656
Theory (18 points)
13. Confirming proper title to equipment supports which of the following assertions? (Easy)
a. Existence or occurrence
b. Presentation and disclosure
c. Insurance coverage
d. Rights and obligations
14. Which of the following is not normally considered an act of concealing cash shortage?
(Average)
a. Lapping
b. Window dressing
c. Banking
d. Kitting
15. In October, three months before year-end, the bookkeeper erroneously recorded the receipt of
a one-year bank loan with a debit to cash and a credit to miscellaneous revenue. Select the
most effective method for detecting this type of error. (Average)
a. Foot the cash receipts journal for October
b. Send a bank confirmation as of year-end
c. Prepare bank reconciliation as of year-end
d. Prepare a bank transfer schedule as of year-end
16. Tracing shipping documents to sales invoice provides evidence that? (Average)
a. Shipments were recorded as sales
b. Recorded sales were shipped
c. Invoiced sales were shipped
d. Shipments were billed
17. Equipment acquisitions that are misclassified as maintenance expense most likely would be
detected by an internal control that provides for? (Difficult)
a. Segregation of duties of employees in the accounts payable department
 b. Independent verification of invoices for disbursement recorded as equipment
acquisitions
c. Investigation of variances within a formal budgeting system
d. Authorization by the board of directors of significant equipment acquisitions
18. Which of the following is the least effective audit procedure regarding the existence assertion
for the securities held by the auditee? (Average)
a. Examination of paid checks issued in payment of securities purchased.
b. Vouching all changes during the year to supporting documents.
c. Simultaneous count of liquid assets.
d. Confirmation from the custodian.
19. In performing tests of the carrying value of trading securities, the auditor would usually:
(Easy)
a. Ask management to estimate the market value of the securities.
b. Refer to the quoted market prices of the securities.
c. Value the securities at cost regardless of their market prices.
d. Count the securities.
20. In violation of company policy, James Company erroneously capitalized the cost of painting
its warehouse. An auditor would most likely detect this when (Average)
a. Discussing capitalization policies with Coatsen's controller.
b. Examining maintenance expense accounts.
c. Observing that the warehouse had been painted.
d. Examining construction work orders that support items capitalized during the year.
21. As one of the year-end audit procedures, the auditor instructed the client’s personnel to
prepare a standard bank confirmation request from a bank account that had been closed during
the year. After the client’s treasurer had signed the request, it was mailed by the assistant
treasurer. What is the major flaw in this audit procedure? (Difficult)
a. The confirmation request was signed by the treasurer
b. Sending the request was meaningless because the account was closed before the
year-end
c. The request was mailed by the assistant treasurer
d. The CPA did not sign the confirmation request before it was mailed
22. When performing an audit of the property, plant and equipment accounts, an auditor should
expect which of the following to be most likely to indicate a departure from generally
accepted accounting principles? (Average)
a. Repairs have been capitalized to repair equipment that had broken down
b. Interest have been capitalized for self-constructed asset
c. Assets have been acquired from affiliated corporations with related transactions
recorded and described in the financial statements
d. The cost of freight-in on an acquisition has been capitalized.
23. To best ascertain that company has properly included merchandise that it owns in its ending
inventory, the auditor should review and test the? (Average)
a. Terms of the open purchase orders
b. Purchase cutoff procedures
c. Contractual commitments made by purchasing department
d. Purchase invoices received on or around year-end,
24. Your client performed the physical account of inventory as of November 30, one month prior
to year end. Subsequently, your client closed the sales journal on 12/29/2021, two days before
year-end, and reported those two day’s credit sales in January of the next year. Assuming the
 client uses a perpetual inventory system, which of the following is most likely to be
overstated relating to the year 2021 financial statements? (Difficult)
a. Sales
b. Inventory
c. Cash
d. Accounts receivable
25. An aged trial balance of accounts receivable is usually used by the auditor to? (Average)
a. Evaluate the results of compliance tests
b. Evaluate the provision for bad debt expense
c. Verify the validity of recorded receivables
d. Ensure that all accounts are promptly credited
26. An auditor testing long-term investments would ordinarily use analytical review as the
primary audit procedure to ascertain the reasonableness of the? (Average)
a. Valuation of marketable securities
b. Completeness of recorded investment income
c. Existence and ownership of investments
d. Classification of gains and losses on the disposal of securities
In items 27-28: The information below was taken from the bank transfer schedule prepared during the
audit of Khaye Ting Company’s financial statements for the year-ended December 31, 2021. Assume
all checks are dated and issued on December 30, 2021.
No. From To Disbursement Receipts

Per Book Per Bank Per Book Per Bank

101 Pbcom HSBC 12/30 1/4 12/30 1/3

102 UCPB MBank 1/3 1/2 12/30 12/31

103 HSBC PSBank 12/31 1/3 1/2 1/2

104 MBank PNB 1/2 1/2 1/2 12/31

27. Which of the following checks might indicate kiting? (Average)
a. 101 and 103
b. 102 and 104
c. 101 and 104
d. 102 and 103
28. Which of the following checks illustrate deposits/transfers in transit on December 31, 2021?
(Average)
a. 101 and 102
b. 101 and 103
c. 102 and 104
d. 103 and 104
29. In testing plant and equipment balances, an auditor examines new additions listed on an
analysis of plant and equipment. This procedure most likely obtains evidence concerning
management’s assertion of? (Average)
a. Completeness
b. Presentation and disclosure
c. Existence or occurrence
d. Valuation and allocation
 30. Among the following current members of the Board of Accountancy, who is the
vice-chairman? (Average)
a. Gloria T. Baysa
b. Noe G. Quinanola
c. Maria Teresita Z. Dimaculangan
d. Samuel B. Padilla
Nothing follows~~

Prepared by: James B. Cantorne

The questions are based on the following authors and reviewers, these are modified by the preparer:
1. Darrel Joe Asuncion
2. Ma. Elenita Cabrera
3. Rey Ocampo
4. Gerardo Roque
The questions are formed in parallel competency with the current preboard of the various review
centers and is answerable within 1 hour and 15 minutes. The following are coverage of this test:
1. Audit of Cash
2. Audit of Receivables
3. Audit of PPE
4. Audit of Inventories
5. Audit of Investments
6. Audit of Transaction Cycles
The following is not covered by the same:
1. Audit of Intangible Assets
2. Audit of Impairment of Assets
3. Audit Process and Risk-Based Audit