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Which audit procedure would provide best evidence to verify accrued interest at the year end?
1) Inspect bank reconciliation and confirm
2) Recalculate accrued interest based on outstanding loan value
3) Inspect bank confirmation letter to confirm the loan account interest rate
What was the answer of this question?Keep in mind that payback considers cash flows instead of accounting profits
If in question you are provided with EBIT then you are required to calculate the cash flows by adjusting Tax and depreciation.(EBIT = CFAT+TAX-DEPRECIATION)
CFAT is calculated after tax and before depreciation.Note- in order to gain the discount customer needs to pay within 1 months
For 2 months receivable –
{(100/100-1.5) ^12/1}-1]*100
19.89%
For 3months receivable –
{(100/100-1.5) ^12/2}-1]*100
9.5%@cadhakan no 464 is the right answer and 200 shouldn’t be charged to p&l
