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During the course of your audit of the non-current assets of Eastern Engineering Inc at 31 March 20X4,
two problems have arisen.
(a) The calculations of the cost of direct labour incurred on assets in the course of construction by the
company’s employees have been accidentally destroyed for the early part of the year. The direct
labour cost involved is $10,000.
(b) The company incurred development expenditure of $25,000 spent on a viable new product which
will go into production next year and which is expected to last for ten years. These costs have been
expensed in full to the statement of profit or loss.
(c) Other relevant financial information is as follows.
$
Profit before tax 100,000
Non-current asset additions (excluding constructed assets) 133,000
Assets constructed by company 34,000
Non-current asset at net book value 666,667Sir for the (a) part there is apparently no need for a Modification of opinion and i cudnt understand why is that?
The $10,000 of missing information is not material when compared to non-current assets of $666,667.$10,000 is material with respect to profit (5% – 10%), but because $10,000 is low with respect to NCA value it could be argued that no qualification was needed. Presumably some labour costs went into the construction.
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