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sir,
due to new regulations each warehouse(35 warehouses) is required to undergo a major health inspection every 3 yrs all warehouses were inspected at a cost of 25 for each inspectionthe answer says this shld be capitalised and depreciated over 3 yrs………..but how can we capitalise this cost…..its not improving the warehose condition……..why cant we recognize in full as a one time expense ??
2nd question– different quest–how is profit effected by provision… not recognizing a provison impacts liabilities but how does profit get effected ?
last question–whenever controls are weak…..can i always state more substantive testing is required ?
Whereas we cannot provide for the three yearly inspection, we should spread the cost over the next three years
It would be a major distortion simply to expense the lot in one year with nothing in the next two
“2nd question– different quest–how is profit effected by provision… not recognizing a provison impacts liabilities but how does profit get effected ?”
What’s the double entry for creating a provision?
Dr expenses in the statement of profit or loss
Cr liabilities on the statement of financial position“whenever controls are weak…..can i always state more substantive testing is required ?”
Sounds good to me …. unless resignation is a possibility!
1-IAS 16 requires entities to capitalized the cost of health inspection as it is necessary to bring asset to its present condition.
2-If Provision is not recognized when it should have been then it means that profit is overstated and liabilities are understated.
3- Isn’t it obvious that When Controls are weak extensive Subtantive testing is required in order to reduce the audit risk.
Hi Abdullah
If you believe that my responses are not up to standard, please feel free to let me know
But please stay off the Ask ACCA Tutor page – these pages are for tutors and are not open forum pages
Thanks
sir can u throw more light on the first question……i understood the major distortion part but the rest not
and in the income statement provisions will come under other epenses??
“Whereas we cannot provide for the three yearly inspection, we should spread the cost over the next three years”
We have just spent money on warehouse inspections that we HAD to have in order that we can carry on for the next three years
You say that the inspections have not improved the warehouse conditions. What those inspections have achieved is an extension of the useful life of the warehouses by three years – otherwise they would have been closed down by the authorities
OK now?
yes sir got it thanks a ton I hv one more question
we are planning the audit of financial statements….the group sold of a subsidary 2-3 months before the year end
the answer says—-“it is possible it is a disposal group of assets and a discontinued operation as per ifrs 5″…. but when we hv sold it Well before the yr end why show it seperately………ifrs 5 is used when u hv an intention to sell within the nxt yr…..why cant we show it normally as a gain on sale and being a large figure we show it as a seperate item??IFRS 5 relates not just to assets held for sale
It applies also to discontinued operations and they need to be disclosed separately in such a way that people like investment analysts can more fully appreciate the effects of this year’s figures that the discontinued operation had
Had you forgotten the discontinued operations?
yes sir i forgot about the discontinued part……staying with ifrs 5 question bluebell 12/08
the question says eight properties were sold under the agreement((15 yrs). bluebell recieves an annual financial return based on the profit. at the end of the contract bluebell has the option to purchase it back…….in the question the profit on disposal is included under other operating income……………….NOW BY IFRS5 shldnt this be disclosed seperately and not under other operating income??continuing with this question—— ANSWER–it might be a sale and repurchase transaction…so is given if it is a sale and repurchase transaction then finance cost might not hv been included
why shld we include finance cost tht other company will be paying us for using our asset they are the ones to include finance cost not us ??
Sorry Mike,I didn’t know that Its tutor forum.I will refrain from posting in any of the threads in this section.
However,I also have a query that whether we have to capitalize the health inspection cost or to expense it?
Its would be very grateful of you if you reply to my question.
sir by now u must be tired answering my doubts i hv asked a lot of questions and there are more i am sorry!
1st question– more of a f8 ques. there has been fraud by sales ppl making false sales claim the answer says reconcile the sales per the sales comission claims to the sales ledger control account
through this quest can u tell me difference btw sales account and a sales control account…..if the entry passed itself is wrong wont he sales ledger control acccount also show incoorect amounts??
last question——oak–oak properties were re-valued its given and also its shown in the sofp as revaluation reserve but nothing in the income statement at all…………..the kit answer doesnt point it out can i do it ??
my frnd told me its bccaus they asked audit risks not material misstatements in the question……..hes wrong isnt he ? he’s like only if MMS were asked cld u hv brought this point out
abdullahzafar – I have replied higher up on this thread – yes, the health inspection costs should be capitalised
mzk786 – this hits me as a secured loan so we need to “undo” the sale, bring the assets back into TNCA, depreciate them, accrue finance costs and ….. think long and hard what to do with the income from managing the hotels
I’m inclined to accept this as revenue – it’s a receipt that is dependent upon the hotels’ performance so presumably the gross receipts are collected by the finance company and they are paying us to manage the hotels
I don’t believe that IFRS 5 is applicable ….. do you?
mzk786 !!!!!!
“through this quest can u tell me difference btw sales account and a sales control account…..if the entry passed itself is wrong wont he sales ledger control acccount also show incoorect amounts??”
This isn’t F8!
This is F3!!!!
Sales account is an income account
It double enters to either Sales Ledger or to Sales Ledger Control account
But not both – the debit entry for a sale to a customer will typically be debited to the personal ledger normally called the Sales Ledger (or Receivables Ledger, or Debtors’ Ledger, or Customers’ Ledger)
But it is also entered in total to the Sales Control account in the Nominal Ledger (or General Ledger, or Impersonal Ledger)
If the double entry is to the Sales Ledger then the entry in Sales Ledger Control account is a memorandum record
If the double entry is to Sales Ledger Control account, then the entry in Sales Ledger is the memorandum record
But I can’t type out an entire F3 lecture – sorry!
The double entry for a property revaluation is Dr TNCA (the property) and Cr Revaluation Reserve
Which bit of that did you want to take to statement of profit or loss?
Is your friend qualified? If “Yes”, how
If “No” why are you taking his advice?
But in the example you’ve given about no mention of the revaluation in the profit or loss ….. well!
Admittedly there should be an entry in the comprehensive income section of the profit or loss and in the statement of changes in equity if that’s asked for
OK?
yes sir thts wht i wanted to know…….. in the exam can i point tht out saying” there should hv been a entry in the other comprehensive income this shows a possible lack of effective controls” or something along those lines. control risk might be higher than initially thought
sir it would be wrong just to point out mistakes without showing how its a mms or audit risks …..isnt it? so writing “shows a possible lack of effective controls” is crucial ?
Agreed – and if it’s not disclosed in comprehensive income, you have to ask about the finance director / chief accountant’s competence!
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