Reference no: EM133187092
Question - In conducting your audit of AACA Corporation, a company engaged in import and wholesale business, for the year ended December 31, 2022, you determined that its internal control system was good. Accordingly, you observed the physical inventory at an interim date, November 30, 2022 instead of at December 31, 2022.
You obtained the following information from the company's general ledger.
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Sales for eleven months ended November 30, 2022
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P1,120,000
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Sales for the year ended December 31, 2022
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1,536,000
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Purchases for eleven months ended November 30, 2022 (before audit adjustments)
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856,000
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Purchases for the year ended December 31, 2022
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1,280,000
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Inventory, January 1, 2022
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140,000
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Physical inventory, November 30, 2022
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220,000
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Your audit disclosed the following additional information.
Shipments costing P12,000 were received in November and included in the physical inventory but recorded as December purchases.
Deposit of P4,000 made with vendor and charged to purchases in October 2022. Product was shipped in January 2023.
A shipment in December was damaged through the carelessness of the receiving department. This shipment was later sold in December at its cost of P16,000.
In audit engagements in which interim physical inventories are observed, a frequently used auditing procedure is to test the reasonableness of the year-end inventory by the application of gross profit ratio. Based on the above and the result of your audit, you are to provide the answers to the following:
Required -
1. Determine the gross profit ratio for eleven months ended November 30, 2022?
2. Determine the cost of goods sold during the month of December, 2022 using the gross profit ratio method?
3. Determine the December 31, 2022 inventory using the gross profit method?