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Auditing PPE tutorial solutions KH
Concepts In Biochemistry And Microbiology (SHGB6115 )
Universiti Malaya
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Auditing PPE – tutorial solutions
Part a) Audit procedures
General audit procedures to be performed: Verify that the balance per the PPE note correlates to the balance presented in the financial statements – if any differences are found this must be reconciled. Make enquiries of the company about any significant movements on PPE during the year. Obtain a copy of the fixed asset register. Verify that the balance in the FSs correlates to the balance in the PPE note, and to the fixed asset register.
Existing assets: All categories
Land and buildings machineryPlant and vehicles Motor
Fixtures and fittings
Total
Cost b/f 2,950,000 1,450,00 0 856,000 413,250 5,669, Accumulated depreciation b/f 435,00 0 337,000 146,000 294,580 1,212,
For a sample of existing assets from the fixed asset register, physically inspect the asset to ensure that it exists, is in use and is in good condition. For a sample of NCA from the fixed asset register (concentrating on high value assets), obtain documentation confirming proof of ownership. Inspect assets for condition and usage to identify signs of impairment. Agree the accumulated dep’n b/f to prior year audited financial statements.
Land and buildings:
Revaluation
Land and buildings
Revaluations (increase cost) 150, Revaluations (remove dep’n) (435,000)
For revalued assets, inspect the valuer's report and agree the amount stated to be £3. Consider reasonableness of valuation, reviewing: o Experience / qualification of valuer o Scope of work o Methods / assumptions used o Valuation bases are in line with accounting standards o If the valuer used is not considered to be competent, then consider obtaining independent verification through the use of an auditor’s expert. Re-calculate the balance required in the revaluation reserve and ensure that this agrees. Verify that the acc. dep’n on the revalued asset has been removed and re-calculate to ensure accurate.
Plant and machinery, fixtures and fittings and motor vehicles:
Additions
machinery Plant and vehicles Motor
Fixtures and fittings Additions 980,000 12,000 12,
For a sample of additions (concentrating on high value items) from the fixed asset register, physically inspect the asset to ensure that it exists, is in use and is in good working condition. For a sample of additions from the fixed asset register (concentrating on high value assets), obtain documentation confirming proof of ownership, such as a purchase invoice / title deeds. Review the repairs and maintenance account in the general ledger for items of a capital nature. Review capitalisation of expenditure by reviewing invoices. Verify that costs capitalised meet the criteria for capitalisation under IAS 16 and should not be expensed (such as repairs and maintenance) Inspect NCA accounts for a sample of purchases to ensure that they have been properly allocated. If assets have been constructed by the client, obtain an analysis of the costs incurred, cast for arithmetical accuracy and agree a sample of costs to supporting documentation (e. payroll, material invoices).
Disposals
machinery Plant and vehicles Motor
Fixtures and fittings Disposals (remove cost) (410,000) (84,000) - Disposals (remove acc. Dep’n) (119,823) (50,490) -
Verify the sale / disposal occurred by inspecting sale / scrap documentation to supporting documents (e., transfer of title deeds) Verify proceeds received to documentation and bank statement. Recalculate the profit or loss on disposal and verify this has been recorded in the appropriate section of the P&L. If the asset was used as security, ensure that this has been released to supporting correspondence. Verify that both the cost and corresponding accumulated depreciation have been removed from the PPE balance.
Part b) Analytical procedures in respect of depreciation charge
Expected Actual Land and buildings
Revaluation took place on 1 January, so one year’s depreciation to be charged on revalued amount over re-estimated UEL:
ൌ ݊݅ݐܽ݅ܿ݁ݎ݁ܦ ݀݁ݐܿ݁ݔܧ
£3݉
ݏݎܽ݁ݕ
ൌ £62,
£62,
£62,
Plant and machinery
Assets held all year
ൌ ݊݅ݐܽ݅ܿ݁ݎ݁ܦ ݀݁ݐܿ݁ݔܧ
£1,450,000 െ £410,
ݏݎܽ݁ݕ
ൌ £52,
Additions and disposals (assume half way through year)
ൌ ݊݅ݐܽ݅ܿ݁ݎ݁ܦ ݀݁ݐܿ݁ݔܧ
£980,000 £410,
ݏݎܽ݁ݕ
ݔ
6
12
ൌ £34,
£52,
£34,
£86,
£101,
Motor vehicles
Assets held all year
ൌ ݊݅ݐܽ݅ܿ݁ݎ݁ܦ ݀݁ݐܿ݁ݔܧሺ£856,000 െ £64,000ሻ%20ݔ ൌ £158,
Additions and disposals (assume half way through year)
ൌ ݊݅ݐܽ݅ܿ݁ݎ݁ܦ ݀݁ݐܿ݁ݔܧሺ£12,000 £64,000ሻݔ
6
12 ݔ %20 ൌ £15,
£158,
£7,
£166,
£145,
Fixtures and fittings
Assets held all year
ൌ ݊݅ݐܽ݅ܿ݁ݎ݁ܦ ݀݁ݐܿ݁ݔܧ
£413,
ݏݎܽ݁ݕ
ൌ £41,
Additions (assume half way through year)
ൌ ݊݅ݐܽ݅ܿ݁ݎ݁ܦ ݀݁ݐܿ݁ݔܧ
£12,
ݏݎܽ݁ݕ 10
ݔ
6
12
ൌ £
£41,
£
£41,
£40,
£356,
£348,
If the difference of £8,365 is considered to be material then it must be investigated further (most likely concentrating on MV and P&M as these were the biggest discrepancies on a classification basis). If it is considered to be trivial, then no further investigation will be necessary.
Auditing PPE tutorial solutions KH
Course: Concepts In Biochemistry And Microbiology (SHGB6115 )
University: Universiti Malaya
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