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OPERATIONAL AUDITING PROBLEM Problem 1: JTC Corporation is considering the purchase of KPL Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, JTC Corporation has been given the company's financial statements for the two most recent years. KPL Company Comparative Statement of Financial Position This Year Last Year Assets Current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Property and equipment, net Total assets P50,000 P 100,000 300,000 150,000 600,000 400,000 25,000 30.000 P 975,000 P 680,000 125.000 150.000 P1,100,000 P 830,000 Liabilities and Shareholders' Equity Current liabilities: Accounts payable Short-term notes payable Total current liabilities Long-term bonds payable, 12% Total liabilities Shareholders' equity Ordinary shares (100,000 shares) Retained earnings Total liabilities and shareholders' equity P 400,000 P 290,000 200.000 60.000 P 600,000 P 350,000 100.000 150.000 P 700,000 P 500,000 200,000 200,000 200.000 130,000 P1,100,000 P 830,000 KPL Company Comprehensive Income Statement This Year Last Year Sales P950,000 P900,000 Less: Cost of goods sold 500.000 490,000 Gross margin 450,000 410,000 Less: Selling and administrative expenses 275 000 260,000 Operating income 175,000 150,000 Less: Interest expense 12.000 18,000 Income before taxes 163,000 132,000 Less: Income tax 65 200 52.800 Net income after tax P 97,800 P 79,200 ==== Required: Determine if KPL Company is efficient or effective by comparing the efficiency and effectiveness ratios of this year with that of last year. Is there a possibility that KPL Company is both efficient and effective? Give a brief explanation to support your