3) Plant and equipment are not as inherently risky as are other assets, such as inventories...
3) Plant and equipment are not as inherently risky as are other assets, such as inventories and accounts receivable. However, a company should still endeavor to maintain effective internal control over plant and equipment.
a. Describe the principal purpose of internal controls relating to plant and equipment.
b. List and describe four major controls applicable to plant and equipment.
Homework Answers
a) The principal purpose of internal controls relating to plant and equipment is to obtain maximum efficiency from the dollars invested in plant assets.
b)The following are major internal controls for plant and equipment (only four required):
•Use of a plant budget to forecast and control acquisitions and retirements.
•Maintaining subsidiary ledger of property.
•Establishing a system of authorizations for acquisitions.•A written statement of company policy distinguishing between capital and revenue expenditures.
•A policy requiring all purchases of plant and equipment through normal purchasing and receiving procedures.
•Periodic physical inventories.
•A system of retirement procedures, including serially numbered retirement work orders.
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3) Plant and equipment are not as inherently risky as are other
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