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1st question part b from june 2012 paper,
for disposal of asset they lay substantive procedure as
“obtain a breakdown of disposals,cast the list and agree all assets removed from FAR to confirm existence.
plz help i m confused about this existence word in disposal,,,if asset is disposd
why cant we say tht it confirm its removalIt is an odd sentence.
I think what they are trying to say is that the disposals should only relate to assets that once existed. Let’s say the company wanted to reduce its profits. It could do this by disposing of a non-existent asset, at a mythical book value for $Nil.
The list of disposals says that they disposed of an asset that cost $20,000 for $Nil (ignore depreciation for this example)
Double entry:
Dr Disposals account 20,000
Cr Asset account 20,000Dr Cash $Nil
Cr Disposals account $NilDr P&L account 20,000
Cr Disposals account 20,000We need ot ensure that the assets had existed and we can do that by ensureing that it had been in the FAR.
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