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4 (a) Explain the auditor’s responsibilities in respect of subsequent events. (5 marks)
Required:
Identify and comment on the implications of the above matters for the auditor’s report on the financial
statements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending
30 September 2006.
NOTE: The mark allocation is shown against each of the matters.
(b) Describe the audit work to be performed in respect of the carrying amount of the following items in the
balance sheet of GVF as at 30 September 2005:
(i) goat herd; (4 marks)
Property at cost (useful life 15 years) $45 million
Accumulated depreciation $6 million
On 1 April 2014, Dune decided to sell the property. The property is being marketed by a property agent at a price of $42 million, which was considered a reasonably achievable price at that date. The expected costs to sell have been agreed at $1 million. Recent market transactions suggest that actual selling prices achieved for this type of property in the current market conditions are 10% less than the price at which they are marketed.At 30 September 2014 the property has not been sold.
At what amount should the property be reported in Dune’s statement of financial position as at 30 September 2014？
A、$36 million
B、$37·5 million
C、$36·8 million
D、$42 million
(b) You are the audit manager of Jinack Co, a private limited liability company. You are currently reviewing two
matters that have been left for your attention on the audit working paper file for the year ended 30 September
2005:
(i) Jinack holds an extensive range of inventory and keeps perpetual inventory records. There was no full
physical inventory count at 30 September 2005 as a system of continuous stock checking is operated by
warehouse personnel under the supervision of an internal audit department.
A major systems failure in October 2005 caused the perpetual inventory records to be corrupted before the
year-end inventory position was determined. As data recovery procedures were found to be inadequate,
Jinack is reconstructing the year-end quantities through a physical count and ‘rollback’. The reconstruction
exercise is expected to be completed in January 2006. (6 marks)
Required:
Identify and comment on the implications of the above matters for the auditor’s report on the financial
statements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending
30 September 2006.
NOTE: The mark allocation is shown against each of the matters.
(ii) Briefly explain the implications of Parr & Co’s audit opinion for your audit opinion on the consolidated
financial statements of Cleeves Co for the year ended 30 September 2006. (3 marks)
(c) (i) State the date by which Thai Curry Ltd’s self-assessment corporation tax return for the year ended
30 September 2005 should be submitted, and advise the company of the penalties that will be due if
the return is not submitted until 31 May 2007. (3 marks)
(ii) State the date by which Thai Curry Ltd’s corporation tax liability for the year ended 30 September 2005
should be paid, and advise the company of the interest that will be due if the liability is not paid until
31 May 2007. (3 marks)
(ii) Audit work on after-date bank transactions identified a transfer of cash from Batik Co. The audit senior has
documented that the finance director explained that Batik commenced trading on 7 October 2005, after
being set up as a wholly-owned foreign subsidiary of Jinack. No other evidence has been obtained.
(4 marks)
Required:
Identify and comment on the implications of the above matters for the auditor’s report on the financial
statements of Jinack Co for the year ended 30 September 2005 and, where appropriate, the year ending
30 September 2006.
NOTE: The mark allocation is shown against each of the matters.
What is the carrying amount of the production equipment in Bash Co’s statement of financial position as at 30 September 20X2？
A.$5,016,000
B.$6,270,000
C.$6,330,000
D.$6,360,000
(a) The following figures have been calculated from the financial statements (including comparatives) of Barstead for
the year ended 30 September 2009:
increase in profit after taxation 80%
increase in (basic) earnings per share 5%
increase in diluted earnings per share 2%
Required:
Explain why the three measures of earnings (profit) growth for the same company over the same period can
give apparently differing impressions. (4 marks)
(b) The profit after tax for Barstead for the year ended 30 September 2009 was $15 million. At 1 October 2008 the company had in issue 36 million equity shares and a $10 million 8% convertible loan note. The loan note will mature in 2010 and will be redeemed at par or converted to equity shares on the basis of 25 shares for each $100 of loan note at the loan-note holders’ option. On 1 January 2009 Barstead made a fully subscribed rights issue of one new share for every four shares held at a price of $2·80 each. The market price of the equity shares of Barstead immediately before the issue was $3·80. The earnings per share (EPS) reported for the year ended 30 September 2008 was 35 cents.
Barstead’s income tax rate is 25%.
Required:
Calculate the (basic) EPS figure for Barstead (including comparatives) and the diluted EPS (comparatives not required) that would be disclosed for the year ended 30 September 2009. (6 marks)
(b) Seymour offers health-related information services through a wholly-owned subsidiary, Aragon Co. Goodwill of
$1·8 million recognised on the purchase of Aragon in October 2004 is not amortised but included at cost in the
consolidated balance sheet. At 30 September 2006 Seymour’s investment in Aragon is shown at cost,
$4·5 million, in its separate financial statements.
Aragon’s draft financial statements for the year ended 30 September 2006 show a loss before taxation of
$0·6 million (2005 – $0·5 million loss) and total assets of $4·9 million (2005 – $5·7 million). The notes to
Aragon’s financial statements disclose that they have been prepared on a going concern basis that assumes that
Seymour will continue to provide financial support. (7 marks)
Required:
For each of the above issues:
(i) comment on the matters that you should consider; and
(ii) state the audit evidence that you should expect to find,
in undertaking your review of the audit working papers and financial statements of Seymour Co for the year ended
30 September 2006.
NOTE: The mark allocation is shown against each of the three issues.
(a) IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors contains guidance on the use of accounting policies and accounting estimates.
Required:
Explain the basis on which the management of an entity must select its accounting policies and distinguish, with an example, between changes in accounting policies and changes in accounting estimates. (5 marks)
(b) The directors of Tunshill are disappointed by the draft profi t for the year ended 30 September 2010. The company’s assistant accountant has suggested two areas where she believes the reported profi t may be improved:
(i) A major item of plant that cost $20 million to purchase and install on 1 October 2007 is being depreciated on a straight-line basis over a fi ve-year period (assuming no residual value). The plant is wearing well and at the beginning of the current year (1 October 2009) the production manager believed that the plant was likely to last eight years in total (i.e. from the date of its purchase). The assistant accountant has calculated that, based on an eight-year life (and no residual value) the accumulated depreciation of the plant at 30 September 2010 would be $7·5 million ($20 million/8 years x 3). In the fi nancial statements for the year ended 30 September 2009, the accumulated depreciation was $8 million ($20 million/5 years x 2). Therefore, by adopting an eight-year life, Tunshill can avoid a depreciation charge in the current year and instead credit $0·5 million ($8 million – $7·5 million) to the income statement in the current year to improve the reported profi t. (5 marks)
(ii) Most of Tunshill’s competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill uses the fi rst in fi rst out (FIFO) basis. The value of Tunshill’s inventory at 30 September 2010 (on the FIFO basis) is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same method (AVCO) as its competitors, the assistant accountant says the company would improve its profi t for the year ended 30 September 2010 by $2 million. Tunshill’s inventory at 30 September 2009 was reported as $15 million, however on the AVCO basis it would have been reported as $13·4 million. (5 marks)
Required:
Comment on the acceptability of the assistant accountant’s suggestions and quantify how they would affect the fi nancial statements if they were implemented under IFRS. Ignore taxation.
Note: the mark allocation is shown against each of the two items above.
