Zest Airlines Philippines (FTG) FTG & CO. an accounting and auditing firm was engaged by Zest Airlines Philippines to audit the company for reporting year ended December 31, 2020. You were assigned by FTG to plan the audit, and based on your experienced of the environment, your team will focus on property, plant and equipment material risk that might arise. Based on the your examination and test of record you traced the following transactions: On January 1, 2020, Zest Airlines contracted with LIPAD Aircraft to construct an aircraft to Zest’s specifications at a cost of P20,000,000. During 2020, Zest paid LIPAD P4,000,000 on January 1, and another P2,500,000 on September 30. On the same day, January 1, Zest borrowed P3,600,000 at 13% to partially finance the construction, an obligation still outstanding at the end of 2020. The remaining amount paid to LIPAD was financed from available working capital. Zest has approximately P16,000,000 of additional debt outstanding at an average interest cost of 12%. The aircraft in progress account has a total balance of P20,000,000 as of December 31, 2020. The aircraft was turned over to Zest on December 29, 2020. Required: As auditor, how much is the correct amount of aircraft cost to be recognized by Zest? What should be the audit adjustment if there is a need to adjust the account?
Zest Airlines Philippines (FTG)
FTG & CO. an accounting and auditing firm was engaged by Zest Airlines Philippines to audit the company for reporting year ended December 31, 2020. You were assigned by FTG to plan the audit, and based on your experienced of the environment, your team will focus on property, plant and equipment material risk that might arise.
Based on the your examination and test of record you traced the following transactions:
On January 1, 2020, Zest Airlines contracted with LIPAD Aircraft to construct an aircraft to Zest’s specifications at a cost of P20,000,000. During 2020, Zest paid LIPAD P4,000,000 on January 1, and another P2,500,000 on September 30.
On the same day, January 1, Zest borrowed P3,600,000 at 13% to partially finance the construction, an obligation still outstanding at the end of 2020.
The remaining amount paid to LIPAD was financed from available
The aircraft in progress account has a total balance of P20,000,000 as of December 31, 2020.
The aircraft was turned over to Zest on December 29, 2020.
Required:
As auditor, how much is the correct amount of aircraft cost to be recognized by Zest?
What should be the audit adjustment if there is a need to adjust the account?
Step by step
Solved in 4 steps
