Audit of Investment

Applied Auditing Audit of Investment PROBLEM NO. 1

The following transactions of the Angat Company were completed during the year 2016: Jan. Jan. 2

Purcha Purchased sed 20000 20000 shares shares of !ula !ulacan can Auto Auto Co. Co. for for P"0 P"0 per per share share plus plus #ro$e #ro$era rage ge cost costs s of P"% P"%00. 00. These These shar shares es were were classified as trading securities.

&e#. 1

Purchased 20000 shares of 'alolos Company common stoc$ at P12% per share plus #ro$erage fees of P1(000. Angat classifies this stoc$ as and a)aila#le*for*sale a)aila#le*for*sale security.

Apr. 1

Purchased P2000000 of +P Treasury Treasury ,- #onds paying 102.% plus accrued interest of P%000. /n addition the company paid #ro$erage fees of P1000. Angat classified these #onds as a trading security.

Jul. Jul.

1

Aug. 1 ct ct.

+ece +ecei) i)ed ed semi semian annu nual al inte intere rest st on the the +P Treasu easury ry !ond !onds. s. old P%00000 of +P Treasury ,- #onds at 10 plus accrued interest.

1

ol old 0 000 00 share hares s of of 'al 'alolos olos at P12 12 pe per sha share re..

The mar$et )alues of the stoc$s and #onds on 3ecem#er 1 2016 are as follows: !ulacan Auto Co. 'alolos Company +P Treasury ,- #onds QUESTIONS:

P"% per share P10 per share 102

!ased on the a#o)e and the result of your audit determine the following: 1. 4ain or loss on sale of P%00000 +P Treasury !onds on August 1 2016 2. 4ain or loss on sale of 000 'alolos shares on cto#er 1 2016 . 5hat 5hat amount amount of unrealied unrealied gain gain should should #e shown shown as component component of income income in 20167 20167 ". 5hat amount amount of unrealied unrealied gain gain should #e #e shown as as component of e8uity as of 3ecem#er 3ecem#er 1 20167 PROBLEM NO. 2

9ou were a#le to o#tain the following ledger details of Trading ecurities in connection with your audit of the !ocaue Corporation for the year ended 3ecem#er 1 2006: Particulars 3ate +ef. 3+ C+ Purchase of 43 Co.  "000 shares 1*1" C; P (60000

Purchase of <=C> Co.  "00 shares

2*20

C;

1200000

ale of <=C> Co.  1600 shares +eceipt +eceipt of 43 toc$ 3i)idend  ffsetting Credit to retained earnings

*01

C+

%*1

J;

ale of 43 toc$s  200 shares

*1%

C+

,"000

ale of 43 toc$s  00 shares

10*1

C+

1"000

60000 000

&rom the Philippine toc$ ?@change the 43 di)idends were analyed as follows: >ind Cash

toc$ Cash

3eclared 01*02 0%*02 0*01

+ecor d 01*1% 0%*1% 0*0

P ay m e n t 01*1 0%*1 0(*1%

+ate

P20share 10P0share

At 3ecem#er 1 2006 43 and <=C> shares were selling at P210 and P2"0 per share respecti)ely QUESTIONS: !ased on the a#o)e and the result of your audit determine the following: 1. 4ain or loss on sale of 1600 <=C> shares on 'arch 1 2006 2. 4ain on sale of 200 43 shares on August 1% 2006 . 4ain or loss on sale of 00 43 shares on cto#er 1 2006 ". 3i)idend income for the year 2006 %. Carrying Carrying )alue )alue of Tradin Trading g ecuritie ecurities s as of 3ecem#er 3ecem#er 1 2006 2006 PROBLEM NO. 3

/n connection with your audit of Bogonoy Companys financial statements you were a#le to gather the following which reflect the mar$eta#le securities of the company for the year 2006: Bugo Corp.. 3ate Transactions hares 3e#it (01 Purchase "0000 P2000000 (0 Cash di)idends to stoc$holders of record (1% declared 1% 100000 1001 Purchase %000000 101% ale at P6% "0000 Cash collected for sale made on 1110 after a 111 declaration of P% cash di)idend per share to stoc$holders on record as of 121 "0000 110 121% Cash di)idend recei)ed . Totals P,000000

su#sidiary account

Credit P 100000 2000000 6600000 00000 P(000000

Bogonoy /nc. ac8uired 0- of Pugo Corporations )oting stoc$ on January 1 200% for P%000000. 3uring 200% Pugo earned P2000000 and paid di)idends of P12%0000. Bogonoys 0- interest in Pugo gi)es Bogonoy the a#ility to e@ercise significant influence o)er Pugos operating operating and financial policies. 3uring 2006 Pugo earned P2%00000 P2%00000 and paid di)idends of P,%0000 on April 1 and P,%0000 on cto#er 1. n July 1 2006 Bogonoy sold half of its in)estment in Pugo for P00000 cash.

Applied Auditing Audit of Investment QUESTIONS:

!ased on the a#o)e and the result of your audit answer the following: 1. The gain on sale of "0000 shares of Bugo Corp. on cto#er 1% is 2. The gain on sale of "0000 shares of Bugo Corp. on Do)em#er 10 is . The carrying )alue of the Companys in)estment in Bugo Corp. on 3ecem#er 1 2006 is ". The gain on sale of in)estment in Pugo Corp. is %. The carrying )alue of the Companys in)estment in Pugo Corp. on 3ecem#er 1 2006 is PROBLEM NO. 4

'eycauayan /nc. ac8uired %0000 shares of AAA stoc$ for P% per share and 12%000 shares of !!! stoc$ for P10 per share on January 2 200%. !oth AAA /nc. and !!! Corp. ha)e %00000 shares of no*par common stoc$ outstanding. !oth securities are #eing held as long term in)estments. Changes in retained earnings for AAA and !!! for 200% and 2006 are as follows: AAA /nc. !!! Corp. +etained earnings EdeficitF 110% P1000000 EP1,%000F Cash di)idends 200% E12%000F * Det income 200% 200000 2%000 +etained earnings 3ecem#er 1 200% Cash di)idends 2006 Det income 2006

10,%000 E1%0000F 00000

+etained earnings 3ecem#er 1 2006 'ar$et )alue of stoc$: 1210% 12106

P122%000 P,.00 6.%0

1%0000 E%0000F 12%000 P 22%000 P12.00 1%.00

QUESTIONS: 1. The income from in)estment in AAA /nc. in 2006 is 2. The income from in)estment in !!! /nc. in 200% is . The carrying )alue of /n)estment in AAA /nc. as 3ecem#er 1 2006 is ". The carrying )alue of /n)estment in !!! /nc. as 3ecem#er 1 2006 is %. Bow much is the unrealied gain or loss that will #e included as component of e8uity as of 3ecem#er 1 20067 PROBLEM NO. 5

elect the #est answer for each of the following: 1.

5hich of the following is not a control that is designed to protect in)estment securities7 a. Access to securities should #e )ested in more than one indi)idual. #. ecurities should #e properly controlled physically in order to pre)ent unauthoried usage. c. ecurities should #e registered in the name of the owner. d. Custody o)er securities should #e limited to indi)iduals who ha)e record$eeping responsi#ility o)er the securities.

2.

5hich of the following controls would a company most li$ely use to safeguard in)estment securities when an independent trust agent is not employed7 a. The chairman of the #oard )erifies the in)estment securities which are $ept in a #an$ safe deposit #o@ each year on the #alance sheet date. #. The in)estment committee of the #oard of directors periodically re)iews the in)estment decisions delegated to the treasurer. c. Two company officials ha)e Goint control of in)estment securities which are $ept in a #an$ safe deposit #o@. d. The internal auditor and the controller independently trace all purchases and sales of in)estment securities from the su#sidiary ledgers to the general ledger.

.

5hich of the following controls would an entity most li$ely use to assist in satisfying the completeness assertion related to long* term in)estments7 a. The controller compares the current mar$et prices of recorded in)estments with the #ro$ers ad)ices on file. #. enior management )erifies that securities in the #an$ safe deposit #o@ are registered in the entitys name. c. The internal auditor compares the securities in the #an$ safe deposit #o@ with recorded in)estments. d. The treasurer )ouches the ac8uisition of securities #y comparing #ro$ers ad)ices with canceled chec$s.

".

5hich of the following controls would an entity most li$ely use in safeguarding against the loss of in)estment securities7 a. A designated mem#er of the #oard of directors controls the securities in a #an$ safe deposit #o@. #. An independent trust company that has no direct contact with the employees who ha)e record*$eeping responsi#ilities has possession of securities. c. The internal auditor )erifies the in)estment securities in the entitys safe each year on the #alance sheet date. d. The independent auditor traces all purchases and sales of in)estment securities through the su#sidiary ledgers to the general ledger.

%.

5hen negotia#le securities are of considera#le )olume planning #y the auditor is necessary to guard against a. u#stitution of securities already counted for other securities which should #e on hand #ut are not. #. u#stitution of authentic securities with counterfeit securities. c. =nauthoried negotiation of the securities #efore they are counted. d. =nrecorded sales of securities after they are counted.

6.

/n auditing in)estments for proper )aluation the auditor should do all #ut the following: a. ;ouch purchases and sales of securities #y tracing to #ro$ersH ad)ices and canceled chec$s. #. Compare cost and mar$et #y reference to year end mar$et )alues for selected securities. c. Confirm securities held in safe$eeping off the clientHs premises. d. +ecalculate gain or loss on disposals.

,.

An audit procedure that pro)ides e)idence a#out proper )aluation of trading securities arising from a short*term in)estment of  e@cess cash is a. +ecalculation of in)estment carrying )alue #y applying the e8uity method. #. Comparison of carrying )alue with current mar$et 8uotations. c. Confirmation of securities held #y #ro$er. d. Calculation of premium or discount amortiation.

Applied Auditing Audit of Investment .

The auditee has ac8uired another company #y purchase. 5hich of the following would #e the #est audit procedure to test the appropriateness of the allocation of cost to tangi#le assets7 a. ?)aluate procedures used to estimate and record fair mar$et )alues for purchased assets. #. 3etermine whether assets ha)e #een recorded at their #oo$ )alue at the date of purchase. c. ?)aluate the reasona#leness of recorded )alues #y discussion with operating personnel. d. ?)aluate the reasona#leness of recorded )alues #y use of replacement cost data.

(.

The auditee has Gust ac8uired another company #y purchasing all its assets. As a result of the purchase IgoodwillI has #een recorded on the auditeeHs #oo$s. 5hich of the following comparisons would #e the most appropriate audit test for the amount of  recorded goodwill7 a. The purchase price and the fair mar$et )alue of assets purchased. #. The purchase price and the #oo$ )alue of assets purchased. c. The figure for goodwill specified in the contract for purchase. d. ?arnings in e@cess of 1%- of net assets for the past fi)e years.

10. f the following which is the most efficient audit procedure for testing accrued interest earned on #ond in)estments7 a. ;ouching the receipt and deposit of interest chec$s. #. Tracing interest declarations to an independent record #oo$. c. +ecomputing interest earned. d. Confirming interest rate with the issuer of the #onds.