Page 1 of 9
Colegio de San Gabriel Arcangel
Area E, City of San Jose del Monte, Bulacan
Lesson Module
Course Title: Applied Auditing Level: Fourth Year
Course Code: AAUD Lesson No.: 4
Lesson Hours: 9
Objectives:
At the end of this Module, the student will be able to:
1. Establish the physical existence of the inventory and reasonableness of
inventory quantities;
2. Determine that the inventory has been priced in accordance with GAAP
consistently applied;
3. Establish the clerical accuracy of inventory amount through supporting
internal records and other means;
4. Substantiate the accuracy of the inventory amount trough supporting
records and means;
5. Ascertain whether any obsolete or defective goods included in the
inventories are stated at fair value and whether adequate provision has
been made for possible losses on slow-moving items;
6. Ascertain that the company has title to the goods included in the inventory
and that any pledges of, or liens on the inventory are disclosed in the
financial statements; and
7. Determine that inventories are properly presented and classified in the
balance sheet.
Subject Matter: Audit of Inventories
Procedures:
A. Motivation : Let’s play “Who wants to be a Millionaire
B. Lesson Presentation
Review of Concepts and Terminologies
, Page 2 of 9
Please see PPT for Audit of Inventories
C. Application
MULTIPLE CHOICE – PROBLEMS
Instruction: Shade the letter of the correct answer
Problem 1:
A B C D 1. The following information was provided by the bookkeeper of COW Inc.
Sales for the month of June totaled 286,000 units
The following purchases were made in June:
Date Quantity Unit cost
June 4 50,000 P13.00
June 8 62,500 P12.50
June 11 75,000 P12.00
June 24 70,000 P12.40
There were 108,500 units on hand on June 1 with a total cost of P1,450,000
COW Inc. uses a periodic FIFO costing system. The company’s gross profit for June
was P2,058,750
How many units were on hand on June 30?
a. 80,000 c. 28,500
b. 177,500 d. 149,000
A B C D 2. What is the FIFO cost of the company’s inventory on June 30?
a. P1,025,000 c. P988,000
b. P1,016,230 d. P1,069,124
A B C D 3. What is the total cost of goods sold in June?
a. P3,632,200 c. P3,580,126
b. P3,617,900 d. P3,661,250
A B C D 4. The 286,000 units sold in June had a unit selling price of
a. P20 c. P12.70
b. P13 d. P7.20
A B C D 5. An essential procedural control to ensure the accuracy of the recorded inventory quantities is
a. Performing a gross profit test
b. Testing inventory extensions
c. Calculating unit costs and valuing obsolete inventory or damaged inventory items in
accordance with inventory policy
d. Establishing a cut-off for goods received and shipped
Problem 2
CAT Corp. began operations in 2005. On July 15, 2010, a fire broke out in the company’s warehouse
A B C D 6.
destroying all inventory and many accounting records. The following information was assembled from
the microfilmed records. All sales and purchases are on account.
JANUARY 1, 2010 JULY 15, 2010
Inventory P287,700
Accounts receivable 261,180 P257,780
Accounts payable 176,280 245,700
I. Collections from customers, January 1, 2010 – July 15, 2010, P1,507,600
Colegio de San Gabriel Arcangel
Area E, City of San Jose del Monte, Bulacan
Lesson Module
Course Title: Applied Auditing Level: Fourth Year
Course Code: AAUD Lesson No.: 4
Lesson Hours: 9
Objectives:
At the end of this Module, the student will be able to:
1. Establish the physical existence of the inventory and reasonableness of
inventory quantities;
2. Determine that the inventory has been priced in accordance with GAAP
consistently applied;
3. Establish the clerical accuracy of inventory amount through supporting
internal records and other means;
4. Substantiate the accuracy of the inventory amount trough supporting
records and means;
5. Ascertain whether any obsolete or defective goods included in the
inventories are stated at fair value and whether adequate provision has
been made for possible losses on slow-moving items;
6. Ascertain that the company has title to the goods included in the inventory
and that any pledges of, or liens on the inventory are disclosed in the
financial statements; and
7. Determine that inventories are properly presented and classified in the
balance sheet.
Subject Matter: Audit of Inventories
Procedures:
A. Motivation : Let’s play “Who wants to be a Millionaire
B. Lesson Presentation
Review of Concepts and Terminologies
, Page 2 of 9
Please see PPT for Audit of Inventories
C. Application
MULTIPLE CHOICE – PROBLEMS
Instruction: Shade the letter of the correct answer
Problem 1:
A B C D 1. The following information was provided by the bookkeeper of COW Inc.
Sales for the month of June totaled 286,000 units
The following purchases were made in June:
Date Quantity Unit cost
June 4 50,000 P13.00
June 8 62,500 P12.50
June 11 75,000 P12.00
June 24 70,000 P12.40
There were 108,500 units on hand on June 1 with a total cost of P1,450,000
COW Inc. uses a periodic FIFO costing system. The company’s gross profit for June
was P2,058,750
How many units were on hand on June 30?
a. 80,000 c. 28,500
b. 177,500 d. 149,000
A B C D 2. What is the FIFO cost of the company’s inventory on June 30?
a. P1,025,000 c. P988,000
b. P1,016,230 d. P1,069,124
A B C D 3. What is the total cost of goods sold in June?
a. P3,632,200 c. P3,580,126
b. P3,617,900 d. P3,661,250
A B C D 4. The 286,000 units sold in June had a unit selling price of
a. P20 c. P12.70
b. P13 d. P7.20
A B C D 5. An essential procedural control to ensure the accuracy of the recorded inventory quantities is
a. Performing a gross profit test
b. Testing inventory extensions
c. Calculating unit costs and valuing obsolete inventory or damaged inventory items in
accordance with inventory policy
d. Establishing a cut-off for goods received and shipped
Problem 2
CAT Corp. began operations in 2005. On July 15, 2010, a fire broke out in the company’s warehouse
A B C D 6.
destroying all inventory and many accounting records. The following information was assembled from
the microfilmed records. All sales and purchases are on account.
JANUARY 1, 2010 JULY 15, 2010
Inventory P287,700
Accounts receivable 261,180 P257,780
Accounts payable 176,280 245,700
I. Collections from customers, January 1, 2010 – July 15, 2010, P1,507,600
