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APPLIED AUDITING LECTURE 08 - AUDIT OF INVENTORIES
1. DYNA CORPORATION
The management of Dyna Corporation consulted you as an auditor because of the issue being raised by some
members of the management team as well as of the board of directors. This is because the company used the average
cost inventory method for internal reporting purposes and LIFO for financial statement and income tax reporting.
On December 31, 2018, the inventory was P375,000 using average cost and P320,000 using LIFO.
The unadjusted credit balance in the LIFO Reserve account on December 31, 2018 was P35,000.
What adjusting entry should be recorded to adjust from average cost to LIFO on December 31, 2018?
2. ADRIANA COMPANY
Adriana Company is one of the companies under the wing of your auditing firm. The accountant felt confused because
of the two inventory methods being used. This is because the company wants to have two options whether to avoid
higher taxes or reflect a higher income to please possible investors. In this regard, the management of Adriana
consulted you and asked you to provide a clear computation of its net income. Below are the data gathered:
2017 2018
Net income using LIFO P2,750,000 P3,000,000
Year End Inventory - FIFO 1,400,000 2,000,000
Year End Inventory - LIFO 900,000 1,600,000
What is the net income for 2018 using the FIFO Method?
3. CONSORCIA COMPANY
For one reason or another, the management of Consorcia Company uses the perpetual method of inventory. You
were assigned to audit the inventory account of this company. One of your audit objectives is to ensure that the unit
cost being used is accurate so that a reliable cost of inventory will be expected for financial reporting purposes. The
following data were provided by the Accounting Department:
Under the perpetual system, what is the moving average unit cost on January 31, 2018?
4. HEIDI CORPORATION
Heidi Corporation is under audit and its President is urging the auditors to finish the examination before the end of
March 2019 so that they have enough time to review the significant items noted before the filing of income tax
returns on April 15, 2019. While conducting a detailed examination of its inventory account, you have noted that a
new product was launched by the company during December 2018. During a move to a new location, the inventory
records for this particular product were misplaced. The Accounting Department of the company has been able to
gather some information from the purchases and sales records. The December 2018 purchases were as follows:
The sales for December amount to P6,000,000 or 60,000 units at P100 per unit. Gross profit on sales for December
was P2,400,000. The company has always used the FIFO inventory costing system.