AP05 - Final Preboard Examination

No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
iCARE Accountancy Review

Preboard Examinations
AUDITING PROBLEM
Instructions: Choose the best answer.
1. You are an audit staff engaged in the audit of the Shareholders’ Equity of ABC
Corp. You were asked by the Audit Manager, which among the assertions, is not
addressed by the procedures to be done?
a. Existence c. Valuation and Allocation
b. Rights and Obligation d. Presentation and Disclosure
2. Which of the following audit procedures addressed on the Audit of Shareholders’

Equity can address the management’s assertion of validity of the shareholders’
equity?
a. Recalculation of Earnings per share.
b. Examination of the articles of incorporation.
c. Confirmation of equity balances with the Corporation’s in-house Stock
Transfer Agent.
d. Confirmation of equity balances with the Corporation’s Corporate
Secretary.
3. When examining the shareholders’ equity account of an audit client, an auditor

expects all the following Other Comprehensive Items to be non-recyclable to the
profit or loss except for which one?
a. Revaluation surplus
b. Gains or losses on the sale of FVTOCI investments.
c. Remeasurement gain or loss on retirement plans
d. Changes in the fair value attributed to the credit risk of financial liabilities
measured at fair value.
The cash equivalent account of Aurora Company is composed of the following items:
Time deposit, 3 months maturity due on January 31, 2022 P 200,000
Certificate of shares* 420,000
Money market placement, 2 months 250,000
Customer's check dated December 31, 2021 280,000
Treasury bills dated November 30, 2021, due February 28, 2022 450,000
Treasury bills dated December 31, 2021, due June 30, 2022 490,000
Total 2,090,000
*the share certificate is a redeemable preference share purchased on November 1, 2020
with maturity of January 31, 2021.
4. How much is the amount of cash equivalent?

a. P900,000 c. P1,320,000
b. P1,180,000 d. P1,670,000
1P a g e JABELLAR/AJABINAL/DIBAY
No. 125 Brgy. San Sebastian
Mobile : 0927 283 8234
Telephone : (043) 723 8412
5. You are auditing XYZ Corp. as a continuing auditor for the calendar year-ended
31 December 2019. Based on your review of the prior year working papers, there
were adjustments proposed by the prior year audit team that were not accepted
by the audit client. You were able to confirm that these proposed adjustments
were not material to the financial statements as a whole. On this review, you were
able to determine that the opening amounts per trial balances differ from the
opening amounts per audit. As such, how will you document these findings?
a. Prepare a reconciliation to bridge the differences between the trial balance
and the audited balance based the audit on the audited balance.
b. Inquire from the prior year audit team the reason why differences arose.
c. Prepare an analytical procedure to determine the appropriateness of
valuation on balance sheet accounts.
d. Ignore the differences and continue the audit based on the amounts per
trial balance.
6. Which of the following procedures would you less likely do to obtain sufficient
appropriate evidence that the provisions and contingent liabilities of QT Joms Inc.
a. Examine Minutes of BOD meetings for discussions in relation to provisions
and contingencies.
b. Confirm with the Company’s legal counsel to identify the chances of
winning cases
c. Examine bank confirmation for possible disclosures on contingencies.
d. Obtain schedule of accruals and provisions. Check balances per schedule
if it matches with the control accounts.
7. The main concern of an auditor who is testing the audit client’s contingent
liabilities is?
a. Accrual of Contingent Liabilities.
b. Disclosure of the nature, status and possible impact of contingencies to
the entity.
c. If the contingencies were properly accounted for.
d. The chances of winning the cases.
8. You were assigned to audit the provisions of an audit client. Whom will you
acquire primary information regarding provisions and contingencies?
a. Legal Counsel
b. Management
c. Those charged with governance
d. Supreme Court
9. The following except one will be requested for your testing of the Accounts
Payable of QT Joms Inc.?:
a. AP Journal Voucher
b. Vendor’s Invoice
c. Open purchase orders
d. Receiving report
Mobile : 0927 283 8234
Telephone : (043) 723 8412
10. One of the basic procedures that an auditor should do is to test the
completeness of liabilities; hence, the need for search for unrecorded liabilities.
All except which one is a procedure to be conducted in testing a search for
unrecorded liabilities?
a. Test for all paid invoices for a short period following the balance sheet
date.
b. Test for all unpaid invoices for a short period following the balance sheet
date.
c. Test to determine if the listed open purchase order is validly tagged as
open.
d. Analytical procedures to test the balances of liabilities at year-end and
after the year-end.
OhBaby Gandang Rita Company has four operating segments, one segment is into
wholesaling of groceries, other segment deals in the trading of household equipment and
office equipment, the other segment is into servicing. The other segment is into car rental.
The following items were taken from the books of the different segments pertaining to
their Receivables as of December 31, 2021:
Arising from sale of groceries P650,000
Arising from sale of old grocery store equipment 600,000
Arising from sale of household and office equipment 580,000
Arising from sale of service 550,000
Arising from sale of old service equipment used in servicing segment 500,000
Arising from rental of cars 420,000
Claim from insurance for damage rental cars 370,000
Arising from sale of old cars 330,000
Arising from the accrual of interests on above receivables 280,000
Arising from employee advances 150,000
11. In the consolidated December 31, 2021 statement of financial position what total
amount of trade receivables should Ube Company report?
a. P2,200,000 b. P2,530,000 c. P3,030,000 d. P3,630,000
12. When testing bonds payable, the auditor would normally check the
reasonableness of the interest expense recorded by:
a. Determining the nominal rate and effective rate and then reperforming the
preparation of the amortization table.
b. Recompute the interest expense using the effective interest rate.
c. Inquire of management if there were any retirements or treasury bonds.
d. Confirm from the bondholders how much was credited to them regarding
the interest on their bond holdings.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
13. You were engaged by RAIN, Inc. to audit its financial statements for the calendar
year-ended 31 December 2019. When you were testing RAIN’s expenses, you
were able to determine that there were expenses amounting to PHP200,000 in
2018 were recorded in 2019. There are no other misstatements noted for the
expenses. Overall materiality was set at PHP20M, haircut is 25% in considering
performance materiality and specific materiality allocated to expenses is 10% of
performance materiality. Based on the foregoing, what will be your conclusion for
the misstatements that were discovered?
a. Propose an adjusting journal entry, a debit to retained earnings and a
credit to expenses to correct the error.
b. The misstatement is an under PAS 8; hence, regardless of materiality the
financial statements must be restated.
c. Propose an adjusting journal entry to the management. If the latter refuses
to accept such adjustment, consider the possible impact of the
misstatement to the overall materiality.
d. None of the choices.
14. You were examining the intangible assets of KDM, Inc. and you where examining
if the capitalized intangible assets of the company. Which one of the following
will not be considered?
a. Technical Feasibility
b. Availability of funds
c. Measurable
d. Intention to buy and sell the product
15. Consider the following statements and choose the best answer:
I. When auditing intangibles, the auditor may ignore the residual value in the
recomputation of the amortization expense.
II. When examining the valuation of intangibles, one of the documents that
must be examined is the canceled check.
III. The auditor must ensure that goodwill is amortized when the audit client is a
medium-sized entity not using the full IFRS.
a. Only one statement is correct.
b. Only one statement is wrong.
c. All statements are correct.
d. All statements are wrong.
16. The following are part of your general procedures in the audit of property, plant
and equipment except which one?
a. Obtain the PPE lapsing schedule and ensure that the balances per lapsing
matches with the trial balance.
b. Obtain the accounting policy of PPEs and examine the Company’s policy
as to the recognition, measurement, disclosure and disposal of the fixed
assets.
c. Obtain Minutes of BOD meetings and check if there are items involving
acquisition or disposal of fixed assets including any liens thereto.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
d. Recalculate depreciation of all PPEs.
17. A herd of 100, 2-year-old animals was held at January 1, 2021. Ten animals aged
2.5 years were purchased on July 1, 2021 for P5,400, and ten animals were born
on July 1, 2021. No animals were sold or disposed of during the period. Per unit
estimated fair values less cost to sell were as follows
2.0-year old animal at January 1, 2021 P5,000

Newborn animal at July 1, 2021 3,500
2.5-year old animal at July 1, 2021 5,400
Newborn animal at December 31, 2021 3,600
0.5-year old animal at December 31, 2021 4,000
How much is the increase in the fair value of the biological assets due to price
change?
a. none c. 26,500
b. 25,000 d. 27,500
18. On January 2, 2019, Saint Company invested in a 4-year 10% bond with a face
value of P6,000,000 in which interest is to be paid every December 31. The bonds
have an effective interest rate of 9% and was acquired for P6,194,383. The
following information pertains to the debt security:
Date Fair Value*/Amortized Fair Value*/Amortized cost

cost at 9% at 8.5%
01/01/19 P6,194,383 * None
12/31/19 P6,151,878 P6,229,862 *
12/31/20 P6,105,547 P6,159,400
12/31/21 P6,055,046 P6,082,949
12/31/23 P6,000,000 P6,000,000
Assume that the debt security was classified initially as Investment at Fair Value to
Profit or loss, assume further that during the year 2019 there was a change in the
business model and cash flow characteristics, but Saint Company decided to make
a reclassification on January 2, 2020, to Investment at Fair Value to Other
Comprehensive Income. At what amount should the Investment at Fair Value to
Other Comprehensive Income be recorded on January 2, 2020, assuming the
prevailing rate is still at 8.5%
a. P6,082,949 c. P6,213,992
b. P6,159,400 d. P6,229,862
Mobile : 0927 283 8234
Telephone : (043) 723 8412
19. Among the choices, which is not a document that will be obtained by an auditor
when testing additions of PPEs.
a. Vendor’s invoice c. Work orders of repaired fixed assets
b. Receiving Report d. Minutes of BOD meetings
20. Among the following documents, which can provide support for the propriety of
the Company’s claim on the land presented in the Financial Statements?
a. Contract to Sell c. Tax declaration and payment for the land
b. Canceled check d. Certificate of Title annotated by registry of deeds
21. When assessing the accuracy of amounts recorded for self-constructed assets,
the auditor must be alert in checking which of the following items?
a. Purchased materials
b. Direct labor capitalized
c. Indirect labor capitalized
d. Applied construction overhead.
22. When examining the repairs and maintenance account, the auditor must consider
the following:
I. Based on analytics, questionable increase in repairs and maintenance expense
may be the result of PPE additions having been erroneously expensed.
II. Favorable repairs and maintenance budget variance may also indicate
possible errors in capitalization of ordinary repairs.
a. Both statements are true.
b. Both statements are false.
c. Only statement I is true.
d. Only Statement II is true.
23. In assessing the audit client’s presentation and disclosure for inventories, which
of the following statements is erroneous?
a. A service provider does not have an inventory.
b. A manufacturing-concern entity has raw materials, work-in-process and
finished goods.
c. A merchandising-concern has merchandise inventory.
d. A commodity broker-trader’s measurement of inventories is not covered
by IAS 2.
24. Under the PSA, the auditor must attend at a physical count, unless it is
impracticable. When conducting an inventory count, the auditor must do all of
the following except one:
a. Evaluate management’s instructions and procedures for recording and
controlling the results of the entity’s physical inventory counting.
b. Observe the performance of management’s count procedures.
c. Inspect the inventory.
d. Perform the count together with the client’s staff.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
25. If the auditor is unable to attend the physical inventory count which one of the
following may be conducted as an alternative procedure?
a. Observe some physical count on an alternative date and perform audit
procedures on intervening transactions.
b. Confirm with management the balance as of the physical count.
c. Request for a management representation regarding the accuracy of the
inventory counts.
d. Select samples of inventories and obtain the supporting documents of
such.
26. When the inventory is under the custody and control of a third party and is
material to the financial statements, which of the following procedures may be
done by the auditor to obtain sufficient appropriate evidence on the existence of
such inventories?
a. Confirm the existence of inventory from the custodian.
b. Visit the site of the third-party custodian and perform a count.
c. Disregard the inventory from third-party since the audit objective is to test
the existence of inventories in the warehouse of the audit client.
d. All of the choices are possible procedures.
27. When auditing receivables, the auditor may consider using a negative
confirmation rather than a positive confirmation. In this case, all of the following
except one is true regarding negative confirmation:
a. It does not provide concrete evidence as to the accuracy and validity of
the receivable.
b. It is used when customers are likely to respond.
c. It is used when there are large number of small accounts.
d. It is used when control risk is high.
28. When using external confirmation, the auditor shall maintain control over these
requests, including:
I. Determining the information to be confirmed or requested.
II. Selecting the appropriate confirming party.
III. Sending the requests, including follow-up requests when applicable to the
confirming party.
a. All statements are correct.
b. Only one statement is incorrect.
c. All of the statements are incorrect.
d. Only one statement is correct.
29. When performing a sales cut-off procedure, the following documents are
requested a few days before and after year-end except:
a. Shipping orders
b. Invoices
c. Bills of ladings or delivery receipts
d. All of the choices are requested.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
30. The auditor may perform the following procedures in assessing the presentation
and disclosure of the audit client’s receivables except which one?
a. Examine minutes of BOD meetings.
b. Scan subsidiary ledger for credit balances.
c. Examine conflict of interest statements.
d. Vouch vendor invoices.
31. You were engaged to audit the cash of QT, Inc. and you were assigned to
conduct a surprise count of cash and other negotiable instruments. When
performing the count, you must see to it that:
a. A client has a representative present during the count.
b. You personally count all the cash and negotiable instruments.
c. You examine the authenticity of the negotiable instruments.
d. That the cash and the negotiable instruments are owned by the client.
32. You were performing a separate reconciliation of balances per books and
balances per bank. You noted that the book balance is greater than that of the
bank. Assuming that there were no errors in the book nor in the bank, which of
the following could have caused this discrepancy?
a. Cash on hand
b. Interest income recorded by the bank but not yet by the audit client.
c. Auto-debit made by the bank for payment of bank loan.
d. Bank service charge
33. When sending out a bank confirmation for your audit of cash in bank, you wish
to examine all of the following information except which one?
a. Existence of cash in bank balance.
b. Accuracy of recorded cash in bank amount.
c. Existence of any liens, debit balances and other encumbrances.
d. Valuation of cash balances denominated in foreign currency.
34. An internal auditor wishes to determine whether salaried employees in the

division being audited are taking more paid vacation time than they have earned.
Which of the following audit procedures will be most effective?
a. Observing which employees were absent because of vacations and tracing
those absences through the payroll records to subtractions from
accumulated vacation time.
b. Inquiring the HR staff about any vacation time used more than what has
been earned.
c. Examining employees’ payslips in relation for any accrued leaves earned
during the period.
d. None of the choices is correct.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
QT Inc. commenced its operations on 1 January 2018. During the following year, the
company acquired a tract of land, demolished the building on the land and built a new
factory. Equipment was acquired for the factory and, in September 2016, the plant was
ready to commence operation. A gala opening was held on September 18, with Yorme
opening the factory. The first items were ready for sale on September 25.
During this period. The following cash inflows and outflows occurred:
While searching for a suitable block of land, QT placed an option to

buy with three real estate agents at a cost of P 1,250 each. P 3,750
Receipt of loan from bank 3,000,000
Payment of settlement agent for title search, stamp duties and
settlement fees 48,000
Payment of delinquent property taxes on land assumed by QT 50,000
Payment for land 3,000,000
Payment for the demolition of the building 210,000
Proceeds from sale of material from old building 78,000
Payment to architect 750,000
Payment to City Hall for approval of building construction 50,000
Payment for safety fence around the construction site 56,000
Payment to the contractor for factory building 5,000,000
Payment for external driveways, parking bays and safety lighting 730,000
Payment of interest on construction loan 400,000
Payment for safety inspection on building 30,000
Payment for equipment 570,000
Payment of freight and insurance on costs on equipment 48,000
Payment of installation cost on equipment 60,000
Payment for safety equipment surrounding equipment 140,000
Payment for removal of safety fence 20,000
Payment for new fence surrounding the factory 150,000
Payment for advertisements in the newspaper about the
forthcoming factory and its benefits to the community 10,000
Payment for opening ceremony 70,000
Payment to adjust equipment to more efficient operating levels
subsequent to initial operation 95,000
Based on the above data, answer the following:

35. The amount to be reported as expenses (excluding depreciation) on QT’s income
statement is
a. P 10,000 c. P 82,500
b. P 81,250 d. P 80,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Auditing Problem
Answer key
1. B 6. B 11. A 16. D 21. D 26. A 31. A

2. D 7. B 12. B 17. D 22. A 27. D 32. A
3. B 8. B 13. C 18. D 23. A 28. A 33. D
4. C 9. C 14. D 19. C 24. D 29. D 34. A
5. A 10. D 15. B 20. D 25. A 30. D 35. C
10 P a g e JABELLAR/AJABINAL/DIBAY

AP05 - Final Preboard Examination

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No. 125 Brgy.

iCARE Accountancy Review

Instructions: Choose the best answer.

2. Which of the following audit procedures addressed on the Audit of Shareholders’

3. When examining the shareholders’ equity account of an audit client, an auditor

4. How much is the amount of cash equivalent?

d. Recalculate depreciation of all PPEs.

2.0-year old animal at January 1, 2021 P5,000

Date Fair Value/Amortized Fair Value/Amortized cost

34. An internal auditor wishes to determine whether salaried employees in the

While searching for a suitable block of land, QT placed an option to

Based on the above data, answer the following:

1. B 6. B 11. A 16. D 21. D 26. A 31. A

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