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Property disposal
Property disposal is $2m, which is material. (Disposal/total assets) $2m/118420) = 1.68%. In solutions they did not do any calculations, would it be reasonable to put this in?
You cannot repurchase the property in five years time – could this be a sales finance leaseback? perhaps in the finance agreement there is some sort of evidence that states that you cannot repurchase the property….Need to consider any impairment losses of the sale of the property, hence the risk is that profits may be overstated. If I write this in exam would I get any marks?
Continuing…
Property revaluation
Gain $800, below materiality $900. would the materiality not based on the total assets rather than the $900.? in answers they have compared the gain $800 to the materiality level $900. 800/900 = 88.8%, which is material. whereas I would compare it with the total assets (800/118420) = 0.67% which looks to be immaterial.. I’m confused here..Why would the answer be testing the materiality of the materiality? If 900 is material, then 800 isn’t! What sensibly could have been written is that 800 is 88% of the way towards materiality and that any other errors discovered need only exceed 100 order for aggregate error to exceed materaility
When the examiner gives you values for revenue, profit and assets, there is clearly a reason for doing this!
The reason is for you to be able to determine materiality and the only way of doing that is to compare the value of an incident (800 in your post) to the materiality value (900 in your post)
YES! By all means, show your calculations in your exam answers
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