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Hello Mam, I hope you’re doing good, can you please help me understand the following substantive procedures as in how do they help?
For Depreciation:
Review profit and loss on disposalsFor Self Constructed non current assets:
Review costs to ensure profit element has been includedWhere assets are replaced relatively regularly, a consistent pattern of profits or losses on disposals tells you something about the depreciation policy – e.g. if a company has a fleet of vehicles and there are always losses on disposal that suggests that the depreciation policy is not writing down the vehicles sufficiently quickly. So maybe reducing balance would be more appropriate than straight line – or over 4 years rather than 5 for straight line.
I don’t understand the second one – I would say any profit element should be EXCLUDED. For example – a company is a wholesaler of building materials – i.e. it has building materials in inventory. It then uses some of its own inventory in the construction of a warehouse. “Materials” included in the cost of construction must be at cost to the company and not include any profit element.
Oh ok, thank you mam, there must be an error in the second one then, Thanks a ton for the clarification………
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