RULES & INSTRUCTIONS

1. Materials will be posted per Activity sequence (Data Sheets first then Instruction Sheets in
different dates). Study the Data Sheets, so that when Instruction Sheets are posted it will be
less difficult.
2. An audit engagement is guided by Philippine Standard in Auditing. Be guided by these
standards in accomplishing the task. In addition, your compliance with the Code of Ethics
(applicable concepts – Integrity, Honesty, Confidentiality, and Competence etc.) will be
measured and will have a great impact on your score.
3. Confidentiality doctrine, as if in an actual audit, you are not supposed to divulge information
or circumstances related to the activity. Violation will be subjected to penalty.
4. In this activity, you are supposed to audit, thus its result should be based on the procedures
you implemented and not taken, copied, sourced out from others (a major violation of the
activity rules).
5. You are not allowed to re-produce all materials related to the activity. This is to preserve the
integrity of the activity. Materials are available 24/7, thus there is no reason for reproduction
in any flat form digital or hard copy.
6. Although this activity is a group effort, you will be graded individually.
7. Other info/rules will be posted as the activity is in progress. Please be updated always.
FOREVER MANUFACTURING COMPANY
General Information

1. Forever Mfg. Co. Is a pioneering manufacturer of karaoke/cassette/radio type sound

system, primary market of which are households and small restaurants.
2. The product (karaoke) was conceptualized by Regine & Ariel. The business started in
the house of the couple when they got married in the early 90's. With the demand of the
product they decided to engaged into mass production, which necessites them to put up a
company by the mid 90's. To come up with the required capital they ask Rafael (now owns
35% of the total shares of stock). To handle the increasing market coverage, they also
invited Richard to join the company not only as stockholder but also heads the marketing.
The factory is about 5 kilometers from the commercial district of the province..

3. With the emergence of VCD in the late '90's and Videoke machines in the early
2000's the sales of the company tremendiously decreased. To cope up with the changes,
Forever Mfg. Co. shifted to produce Videoke player, a major part of vedioke machine in
2001.
4. The composition of the board of the directors were as follows (with affiliated
businesses):
Rafael - Chairman of the Board (President & CEO of Mega Dev. Bank)
Ariel - Vice Chairman of the Board (Director of Mega Dev. Bank)
Regine - Treasurer (Co owner of Riverside Rural Bank)
Engr. O. Ogie - Director (With construction company under his name)
Mrs. L. Ogie - Director (A CPA & Director of Mega Dev. Bank)
G. Janno - Director (President of Videoke Machines Unlimited)
R. Jaya - Director (Owns Electronic International Supply, a distributor of electonic
parts)

Trend of the Industry

1. Number of videoke machine assembler/proprietors tremedously increased in the recent
years. While concentration remains to be in Raon, Manila, there were quite a number in
other key cities of the country.
2. Large number of smuggled videoke players are being offerred to videoke machine
assembler at almost 50% price lower.
3. Legally imported videoke players (branded name - e.g. Hundai) offers a much advance
technology but at the same price with the "Forever" brand.
4. Low cost VCD and DVD players are being sold everywhere. At the same time, pirated
videoke disk (VCD & DVD) are being sold to as low as P 25/dsik.
5. New products are being caught the attention of consumers, these are the "magic sing"
videoke microphones.
6. Promac & LG brand release DVD player models with built in 2000 videoke songs.
7. Pioneer just release a DVD player with capability to save 100 songs per 1
gigabytes. Total memory is 120 gigabytes.

Predecessor Auditor issues

1. The predecessor auditor migrated to Australia 5 months ago.
2. Effort to contact him proved to be futile.
 FOREVER MANUFACTURING COMPANY
BALANCE SHEET

A SSETS
PRIOR YEAR'S AUDITED FIGURE CURRENT YEAR'S UNAUDITED FIGURE

Current Assets
Cash on Hand and in Bank 444,393.95 250,625.45
Accounts Receivables 864,107.00 458,417.25
Finished Goods Inventory 278,913.80 378,551.15
Work in Process 150,258.00 175,288.00
Materials Inventory 1,077,155.25 1,686,233.33
total current asset 2,814,828.00 2,949,115.18

Fixed Assets
Building 3,755,174.30 3,755,174.30
Depreciation - building 468,756.84 3,286,417.46 562,508.21 3,192,666.09
Equipment 2,061,792.00 2,061,792.00
Depreciation - equipment 460,579.20 1,601,212.80 552,695.04 1,509,096.96
Furnitures & Fixtures 1,525,800.00 1,525,800.00
Depreciation - fur. & fix. 204,020.00 1,321,780.00 244,824.00 1,280,976.00
Other Factory Equipment 251,620.00 251,620.00
Depreciation - other factory equipment 50,248.00 201,372.00 6,410,782.26 60,297.60 191,322.40 6,174,061.45

TOTAL ASSETS 9,225,610.26 9,123,176.63

LIABILITIES & STOCKHOLDER'S EQUITY

Liabilities
Accounts Payable 830,687.53 685,850.58
Loans Payable 2,500,000.00 2,000,000.00
total liabilities 3,330,687.53 2,685,850.58

Stocholder's Equity
Capital Stock 5,011,250.00 5,011,250.00
Retained Earnings 883,672.73 5,894,922.73 1,426,076.05 6,437,326.05

TOTAL LIABILITIES & STOCKHOLDER'S EQUITY 9,225,610.26 9,123,176.63

 FOREVER MANUFACTURING COMPANY
INCOME STATEMENT

PRIOR YEAR'S AUDITED FIGURE CURRENT YEAR'S UNAUDITED FIGURE

REVENUE
Total Sales 6,730,800.00 8,897,450.00

COST OF SALES
Total Cost of Sales 3,450,650.00 3,899,073.75

GROSS PROFIT 3,280,150.00 4,998,376.25

LESS: OPERATING EXPENSE

Salaries & Wages 2,555,100.00 3,060,480.00
Meals Expense 351,000.00 643,500.00
SSS, Medicare & EC Expense 76,500.00 92,400.00
Office Supplies 21,681.00 27,426.47
Repairs & Maintenance 39,644.00 84,267.29
Travelling 88,334.53 58,141.79
Representation 27,383.50 78,308.59
Rental Expense 23,000.00 65,200.00
Taxes & Licenses 8,040.00 27,738.00
Depreciation Expense 236,270.00 236,270.81
Donation 4,850.00 8,041.30
Miscellaneous 39,898.20 3,471,701.23 74,198.68 4,455,972.93

NET LOSS (191,551.23) 542,403.32

FOREVER MANUFACTURING COMPANY
ORGANIZATIONAL CHART

Stockholders

Board of Directors

Rafael
Chief Operating Officer

Ariel Richard Regine

Production Manager Sales Manager Administrative Manager

Jenilyn Katrina Mark Pinky Fredie Acctg Cashier

Plant Supervisor Procurement Head Stockroom Head Wholesale Outlets Head

Clerks Cashier
Production Procurement Clerk Stockroom clerk Sales Clerks Acct Pay. Production Acct. Rec.
Supervisors Clerk Cost Clerk Billing Clerk
Factory Workers

Factory Cost Product Eng'ring Maintenance

Clerk Design Section