Question

AUDITING

Q16-20 Non-current assets are being audited and the following factors have been discovered: Motor vehicles are depreciated at 25% pa straight line (full year charge in the year of acquisation, no charge in the year of disposal). The cost of the vehicles at the end of the period is $200.000 and the depreciation charge for the year is $50.000. Because mosts care are kept for at least 5 years the company is thinking of changing its depreciation rate for cars to %20 pa. So that the charge would become $40.000.

16. Which of the following is correct?

a) Physical inspection of the cars verifies cut-off

b) Pysical inspection of the cars verifies rights and oblications

c) Pysical inspection of the cars verifies existence

d) Pysical inspection of the cars verifies completeness

17. Which of the following is correct?

a) Impairement of a non-current asset could be identified by recalculation

b) Impairement of a non-current asset could be identified by inspection

c) Impairement of a non-current asset could be identified by analytical procedures

d) Impairement of a non-current asset could be identified by reperformance

Answer 1

16. c) Physical inspection of the cars verifies existence.

Reason: Car being a Tangible Fixed Asset its existence can be verified by Physical verification/inspection. As per Auditing Pronouncements Auditor should participate and observe the Physical Counting of Tangible assets of entity conducted by its management.

17. b) Impairement of a non-current asset could be identified by inspection.

Reason: Impairement of an asset is done keeping in mind internal (E.g. Major Damage to asset) & external factors (E.g. Arrival of new technology) so as to reduce the Book value of asset to its recoverable value.