question archive The owner of Ace Trading engaged your services as auditor
The owner of Ace Trading engaged your services as auditor
Subject:BusinessPrice: Bought3
The owner of Ace Trading engaged your services as auditor. There is discrepancy between the
company's income and the sales volume. The owner suspects that the staff is committing theft.
You are to determine whether or not this is true. Your investigation revealed the following:
1. Physical inventory (ending) taken December 31 under your observation showed that cost
was P530,000 and net realizable value , P500,000. The inventory of January 1
(beginning) showed cost of P780,000 and net realizable value of P720,000. it is the firm's
policy to value inventory at lower of cost or net realizable value. Any loss between cost
and net realizable value is included in "Other Expense".
2. The average gross profit rate was 40% of net sales.
3. The accounts receivable as of January 1 were P270,000. During the year, accounts
receivable written off amounted to P20,000. Accounts receivable as of December 31 were
P750,000.
4. Outstanding purchase invoices amounted to PP1,000,000 at the end of the year. At the
beginning of the year, they were P750,000.
5. Receipts from customers during the year amounted to PP6,000,000.
6. Disbursements to merchandise creditors amounted to P4,000,000.
Compute:
1. The total sales for the year.
2. The total purchases for the year.
3. The amount of inventory shortage as of the end of the year.
