chap 12//12.7

Question 1

designing subs prdrs for PPE

Answer 1

1. First adt, eve must be obtained regardimngthe fairness of the opening bal and ownership of the assets making the bal
2. can review predecessor working papers, if previous adt done by another firm
3. when not previously adted, adtr need to investigate opening bal and info OBTAINED should be included in the PERMANent file to be then updated at every start of adt
4. for recurring engmnt, adtr focusses on CY trsn.opening bal checked with last adt done. such acc accumulate trsn and thus trsn are a few during the year.
5. adtr will rely on inspection of documentary evidence for additional pPE bought and PPE DISPOSED AND PERFORM mathematical accuracy for deprn.
6. riskier areas for PPE involve prdrs testing existence , occurrence and AVA

Question 2

1. INITIAL PRDRS

Answer 2

1. verify opening bal matches closing bal from working papers of previous period adt

2.test mathematical accuracy of lead schedule for additions and disposal to determine if it matches general ledger bal

3. vouch lead schedule items to entries in the ledger acc and tracing ledger entries to schedule to ensure accuracy

Question 3

2. analytical prdrs

Answer 3

1.not considered very useful when testing for PPE as bal vary substantially with fewer trsn happening

2. comparison of annual DEPRN charge with cost or written down value to provide a comparable measure to DEPRN rate.

3.Evidence for AVA

4. year wise comparison of maintenance expense provide evidence for maintenance evidence recorded and they are not capitalized.

Question 4

3. Test of trsn

Answer 4

1. affected by addition, disposal and repairs and maintenance

Question 5

3. Test of trsn//addition

Answer 5

2. consider mgt policy in making distinction between capital and expenses expenditures.
3. entities have a cut off value to classify the purchase as expense e.g calculators

4.a policy to differentiate capital expenditure and non capital expenditure

5. recorded items are vouched to supporting doc esp authorization in minutes, invoices and contracts
6. for construction in progress, review documentation for construction cost and inspect Major assets physically to ensure that it matches details from documentation
7. enquire abt leases for PPE and review lease documents to ensure that properly accounted for
8. perform computation for accuracy for the present value of leases
9. vouching test for existence, R&O and accuracy
10. examination of lease test for disclosure assertion

Question 6

3. Test of trsn//disposal

Answer 6

1.evidence of sales, disposal should be made available in form of cash remittance advices, written authorizations and sales agreement

2. determine accuracy and propriety of accounting records including recognition of gain or loss
3. can be determined by
   -tracing disposal authorization to accting record
   -inquiry of mgt to disposal
   -analysing revenue for items like sale software PPE
   -inspection of PPE count provide evidence that disposal has been recorded
4. evi that disposal have been recorded relates to R&O and accuracy
5. evi providing validity for refusing assets relates to completeness

Question 7

3. Test of trsn//dmaintenance and repairs

Answer 7

1. reviewing maintenance and repair expenses acc helps to ensure consistency of the charges to this expense
2. examine additions to ensure that they are properly capitalized and it provides evi for completeness

3.may also reveal misclassification that needs to be corrected for classification assertion

Question 8

4.test of balances

Answer 8

1.important for Existence , R&O, completeness assertion

2.main test of balances relate to AVA and disclosure. it involves accumulate DEPRN, provision for impairment and appropriateness for revaluation

Question 9

4.test of balances//contract

Answer 9

1.check ownership by examining registration certificate and insurance policies. for PPE, paid invoices are most persuasive evi

2.title deeds and property papers is also evidence for ownership

3. test provide evi for existence and R&O

Question 10

4.test of balances//DEPRN

Answer 10

1. need to ascertain reasonnableness, consistency and accuracy for DEPRN

2.reasonableness-consider factors like useful lives and remaining useful lives. need to review DEPRN rate and are in accordance to IAS 16

3. Consistency-DEPRN methods used by reviewing lead schedule for PPE and inquiry with mgt. should be consistent with past years by checking past years working papers
4. Accuracy:perform computation to ensure accuracy especially for major assets

Question 11

4.test of balances//impairment

Answer 11

1. observe obsolete or damage units during PPE count

2identify assets linked with discontinuation and not yet disposed
3. inquiry with mgt abt budgets and forecast for specific activities related to the assets

Question 12

4.test of balances//valuation enquiry

Answer 12

1. when mgt decides to revalue PPE, adtr will have to seek assistance from expert//independent valuator for class of asset and interim valuator for interim valuation
2. adtr will have to obtain :
   -a copy of valuator repot
   -basis of valuation
   -appropriateness of the basis for determining carrying value
3. provides evi for AVA and presentation