K2

GRACE CORPORATION
ACCUMULATED DEPRECIATION
December 31, 2011

▶ AUDIT OBJECTIVE

1| To determine that property and equipment is stated at cost and allowances for depreciation or depletion are compu
2| The balances in the accumulated depreciation accounts are reasonable, considering the expected useful lives of the

▶ ASSERTIONS AFFECTED

1| Valuation and Allocation

▶ PROCEDURES PERFORMED

1| Obtain an analysis of the accumulated depreciation during the year and reconcile to ledger.
2| Evaluate appropriateness of depreciation methods used by the client.
3| Analyze repair and maintenance expense accounts.
4| Prepared depereciation schedule for each property, plant and equipment.
5| Proposed adjusting entiries to correct depreciation recorded for property, plant and equipment for the current and p

▶ FINDINGS

1| All property, plant and equipment are depreciated using straight-line.

2| Building is underdepreciated by ₱3,986,947.
3| Furniture and Fixtures is underdepreciated by ₱1,290,000.
4| Transportation Equipment is overdepreciated by ₱600,000.
5| Office Equipment is underdepreciated by ₱591,417.

SUMMARY OF PROPOSED ADJUSTING ENTRIES

Particulars WP Ref. Debit Credit

19 Retained Earnings -
Depreciation Expense -
Accumulated De -
To correct depreciation recorded for building for the current and prior period.

20 Retained Earnings The computed total depreciation reflects the three-period expense that should have been reco
Accumulated Depreciation - Furnitur -
To correct depreciation recorded for furniture and fixture for the current and prior period.

21 Retained Earnings Recorded depreciation for 2011 is overstated by P600,000. However, accumulated depreciatio
Depreciation Expense - Transportati -
 To correct depreciation recorded for transportation equipment for the current and prior period.

22 Retained Earnings The computed total depreciation reflects the three-period expense that should have been reco
Depreciation Expense - Office Equip -
Accumulated Depreciation - Office -
To correct depreciation recorded for office equipment for the current and prior period.

▶ CONCLUSION

Depreciation charged during the period is adequate but not excessive and has been computed on an acceptable basis consiste
The balances in the accumulated depreciation accounts are reasonable, considering the expected useful lives of the property u
reciation or depletion are computed on the basis of acceptable and consistent methods.
g the expected useful lives of the property units and estimated salvage value.

d equipment for the current and prior period.

pense that should have been recognized since 2009. Per 2009 and 2010 Trial Balance, no depreciation is accumulated. Thus, accumulated

nd prior period.

owever, accumulated depreciation is correctly stated. Thus, the following journal entry is proposed:
ent and prior period.

pense that should have been recognized since 2009. Per 2009 and 2010 Trial Balance, no depreciation is accumulated.

prior period.

d on an acceptable basis consistent with that used in prior years.

ted useful lives of the property units and estimated salvage value.
ccumulated. Thus, accumulated depreciation and depreciation expense are understated for the three-year period. Consequently the follow
ccumulated. Thus, accumulated depreciation and de
period. Consequently the following adjusting journal entry is proposed:
ccumulated depreciation and depreciation expense are understated for the three-year period. Consequently the following adjusting journa
y the following adjusting journal entry is proposed
GRACE CORPORATION
ACCUMULATED DEPRECIATION - DEPRECIATION SCHEDULE (BUILDING)
December 31, 2011

Details
Description Date Acquired WP Ref. Cost Salvage VaDepreciab Useful Life
Building 11/02/200a ### ⌽ - ### 20 yrs
Additional Improvem 1/5/2011 ### ⌽ - ### 18.83 yrs
TOTAL BUILDING ### ⏇ -
Book Depreciation
(Over) Under Depreciation

a As per Schedule of Property, Plant and Equipment (SH1) provided by the client to the auditor, reference date for the

b Useful life of the Additional Improvements is based on the remaining economic life of the Building such improvemen

c As a general suumption, the depreciation method employed is the straight-line method.

d The computed total depreciation reflects the three-period expense that should have been recognized since 2009. Pe

PAJE Retained Earnings ###

Depreciation Expense - Building ###
Accumulated Depreciation - Building ###
To correct depreciation recorded for building for the current and prior period.
 ▶ Yearly Depreciation
Useful Life Method c 2009 2010 2011
Straight-Li▶ 275,000 ₱ 1,650,000 ₱ 1,650,000
b Straight-Li▶ 1,061,946.90
₱ 275,000 ₱ - ₱ 1,650,000 ₱ 2,711,947 ₱ -
- - 650,000 ⌽
₱ 275,000 ┼ ₱ 1,650,000 ┼ ₱ 2,061,947 ┼

e auditor, reference date for the Building account is 11/02/2010.

of the Building such improvements pertain to.

e been recognized since 2009. Per 2009 and 2010 Trial Balance, no depreciation is accumulated.
K2.1

Total
₱ 3,575,000
1,061,947
₱ 4,636,947
650,000
₱ 3,986,947 d ┼

This is not presumed to be the acquisition date since the compan

Thus, accumulated depreciation and depreciation expense are unders

on date since the company's 2009 Trial balance reflects such amount. No other documents are available to verify acquisition date.

ation expense are understated for the three-year period. Consequently the following adjusting journal entry is proposed.
verify acquisition date.

ry is proposed.
GRACE CORPORATION
ACCUMULATED DEPRECIATION - DEPRECIATION SCHEDULE (FURNITURE AND FIXTURES)
December 31, 2011

Details
Description Date AcquiWP Ref. Cost Salvage VaDepreciablUseful LifeProposed U
Showcase, 80 pcs @ P1/6/2009 ### ⌽ - ### 40 yrs 10 yrs
40 Office table and 402/6/2009 480,000 ⌽ - 480,000 5 yrs 10 yrs
10 conference tables 08/20/2009 600,000 ⌽ - 600,000 - 10 yrs
30 four-drawer steel ### 240,000 ⌽ - 240,000 - 10 yrs
Office safe fire proof ### 280,000 ⌽ - 280,000 - 10 yrs
50 venetian blinds Fi 08/15/2009 320,000 ⌽ - 320,000 - 10 yrs
Air-conditioning Syst 03/18/2009 ### ⌽ - ### - 10 yrs
TOTAL FURNITURE AND FIXTURES ### ⏇ -
Book Deprecitaion
(Over) Under Depreciation

a A discrepancy is discovered in the mathematical accuracy regarding such acquisition which per given data, amounts

b As per Schedule of Property, Plant and Equipment (SH1) provided by the client to the auditor, reference dates are giv

c Proposed useful life for the Furniture and Fixtures class of PPE is from the List of Property, Plant and Equipment rele

d For simplicity and convenience purposes, items of PPE are depreciated for the entire month if purchased within the

e The computed total depreciation reflects the three-period expense that should have been recognized since 2009. Pe

PAJE Retained Earnings 557,917

Accumulated Depreciation 557,917 ###
To record Furnitures and Fixtures depreciation for prior period
Legends
 K2.2

▶ Yearly Depreciation
Method 2009 d 2010 2011 Total
Straight-Li▶ 23333.33 ₱ 40,000 ₱ 40,000 ###
Straight-Li▶ 28,000 48,000 48,000 124,000
Straight-Li▶ 20,000 60,000 60,000 140,000
Straight-Li▶ 12,000 24,000 24,000 60,000
Straight-Li▶ 14,000 28,000 28,000 70,000
Straight-Li▶ 13,333 32,000 32,000 77,333
Straight-Li▶ 92,250 123,000 123,000 338,250
- ### ₱ - ### ₱ - ### ₱ - ###
- - 355,000 ⌽ 355,000
### ┼ ### ┼ ₱ - ┼ ### ┼e

which per given data, amounts to P960,000 (40*P24,000).

e auditor, reference dates are given in relation to the CV.

perty, Plant and Equipment released by the Commission on Audit.

e month if purchased within the first 15 days of the month of acquisition.

e been recognized since 2009. Per 2009 and 2010 Trial Balance, no depreciation is accumulated. Thus, accumulated depreciation and depre
 However, no other document is available to disprove

This is not presumed to be the acquisition date since the co

No other more reliable source of useful lives is availa

Consequently, items of PPE purchased within the last 15 days of the month of acquisition will be

umulated depreciation and depreciation expense are understated for the three-year period. Consequently the following adjusting journal e
document is available to disprove the reflected amount of P480,000.

the acquisition date since the company's 2009 Trial balance reflects such amount. No other document is available to verify acquisition date

ble source of useful lives is available.

the month of acquisition will be depreciated starting the following month.

the following adjusting journal entry is proposed:

ailable to verify acquisition date.