01.04.

02: Audit of Inventories

BA 123

PART I
Your client, BA 123, Inc. takes inventory on a cycle basis throughout the year. The following
is an inventory card for MockCPA, the latest PC game among the wealthy and bright kids of
Manila. MockCPA was developed to stimulate CPA board exam paranoia among its users.
The information presented below covers the month of November 2015:
Date
1
2

6
11

13
16
20

Receive
d
Balance
Transfer
from
work-in
process
Sales
invoice #
27
Transfer
from
work-in
process
Sales
invoice #
159
Sales
invoice #
173
Correctio
n per
count

Issued

35

Cost

Receive
d

Issued

100

100

42

100

87

100

78

100

900

7,800

74

100

400

7,400

84

100

45

3500

Balanc
e
1,500

50
8

10

Balanc
e
15

5,000
800

4,500

1,000

4,200

8,700

8,400

On November 14, 2015, a count of MockCPA was conducted with 88 as the resulting figure to
which you assented since you were present to observe the count. A correcting entry was
subsequently booked with credit to Inventory Over/Short. You further gathered the following
information:
1. Three of the units on hand on November 14, 2015 were part of the 9 units covered by
sales invoice No. 159. The units were held pending shipment instructions.
2. Sales invoice No. 137 was posted to the wrong card. The invoice actually was for 8
units of Mock123Finals which carries a cost of P190 per unit. A physical inventory of
Mock123Finals was found to be 8 units short and an adjustment was accordingly
made.
3. Although Sales invoice No. 173 was posted on November 16, 2015, the goods were
actually shipped before inventory count was made.
4. The transfer from work in process on November 11, 2015 should have been for 54
units @ P100. Work in process has not been fully inventoried.
Required:

01.04.02: Audit of Inventories

BA 123
1. Prepare a schedule computing the actual overage or shortage of MockCPA on
November 14, 2015.
2. Adjusting journal entries as of November 2015.
PART II
Your client, Madayakungmakalusot Corporation requests your assistance in determining
the amount of loss and in filing an insurance claim in connection with a fire on June 15,
2015 that destroyed some of the companys inventory and accounting records. You were
able to obtain the information from available records:
1. Collections on receivables from December 31, 2014 to the date of fire amounted to
P876,195.50.
2. The petty cash fund balance per ledger is P1,255.25 and the cashier is not bonded.
3. Almost all the merchandise items are sold at approximately 30% in excess of cost.
As of June 15, 2015, the total cost of inventory items not destroyed by the fire
amounted to P144,882.33
4. The last physical inventory was taken on December 31, 2014. At that time, total
inventory (at cost) amounted to P210,789.80.
5. The annual premium of P1,440 on the insurance carried was due and paid on April
1, 2015. The policy, which has a face amount of P155,000 carries an 80%
coinsurance clause.
6. Accounts payable were P110,106.42 on December 31, 2014 and P126,945.37 at
the time the fire occurred.
7. Payments to vendors from December 31, 2014 to the date of the fire totaled
P641,871.56.
8. All sales are on account and accounts receivable were P135,009.18 and December
31,2014 and P107,145.25 at the date of fire.
Required:
Compute the following:
1. Amount of inventory (at cost) as of June 15, 2015.
2. Amount of recovery due from the insurance company.
3. Amount of loss incurred by your client as a result of the fire.