Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion

Chapter 13
Property, Plant, and Equipment: Depreciation and Depletion

True / False Questions

1. The auditors' approach to the audit of property, plant and equipment larely results from the
fact that relati!ely fe" transactions occur.
True #alse

$. % ma&or control procedure related to plant and equipment is a 'udet for depreciation.
True #alse

3. E!idence of continued o"nership of property is o'tained 'y !ouchin payments to a
mortae trustee.
True #alse

(. The auditors typically o'ser!e all ma&or items of property, plant and equipment e!ery year.
True #alse

). *aterial purchases of assets from an affiliated company should 'e disclosed in the financial
statements.
True #alse

+. ,dle equipment "ill enerally need to 'e reclassified as a current asset.
True #alse

-. The primary purpose of internal control o!er plant and equipment is to safeuard the assets
from theft.
True #alse

13-1
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
.. % typical procedure in the audit of property is e/amination of pu'lic records to !erify the
o"nership of the property.
True #alse

0. E!en "hen internal control is "ea1, a sinificant portion of the audit "or1 on property,
plant and equipment may 'e performed at an interim date.
True #alse

12. ,n the audit of depletion the auditors must often rely on the "or1 of specialists.
True #alse


Multiple Choice Questions

11. %n auditor has identified numerous de'its to accumulated depreciation of equipment.
3hich of the follo"in is most li1ely4
%. The estimated remainin useful li!es of equipment "ere increased.
5. Plant assets "ere retired durin the year.
C. The prior year's deprecation e/pense "as erroneously understated.
D. 6!erhead allocations "ere re!ised at year-end.

1$. ,n testin for unrecorded retirements of equipment, an auditor miht.
%. 7elect items of equipment from the accountin records and then attempt to locate them
durin the plant tour.
5. Compare depreciation e/pense "ith the prior year's depreciation e/pense.
C. Trace equipment items o'ser!ed durin the plant tour to the equipment su'sidiary leder.
D. 7can the eneral &ournal for unusual equipment retirements.

13. % plant manaer "ould 'e most li1ely to pro!ide information on "hich of the follo"in4
%. %dequacy of the pro!ision for uncollecti'le accounts.
5. %ppropriateness of physical in!entory !aluation techniques.
C. E/istence of o'solete in!entory.
D. Deferral of certain purchases of office supplies.

13-$
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
1(. 3hich of the follo"in "ould 'e least li1ely to address control o!er the initiation and
e/ecution of equipment transactions4
%. 8equests for ma&or repairs are appro!ed 'y a hiher le!el than the department initiatin the
request.
5. Prenum'ered purchase orders are used for equipment and periodically accounted for.
C. 8equests for purchases of equipment are re!ie"ed for consideration of solicitin
competiti!e 'ids.
D. Procedures e/ist to restrict access to equipment.

1). 3hen there are numerous property and equipment transactions durin the year, an auditor
"ho plans to assess control ris1 at a lo" le!el usually performs:
%. Tests of controls and e/tensi!e tests of property and equipment 'alances at the end of the
year.
5. %nalytical procedures for current year property and equipment transactions.
C. Tests of controls and limited tests of current year property and equipment transactions.
D. %nalytical procedures for property and equipment 'alances at the end of the year.

1+. 3hich of the follo"in 'est descri'es the auditors' approach to the audit of the endin
'alance of property, plant and equipment for a continuin nonpu'lic client4
%. Direct audit of the endin 'alance.
5. %reement of the 'einnin 'alance to prior year's "or1in papers and audit of sinificant
chanes in the accounts.
C. %udit of chanes in the accounts since inception of the company.
D. %udit of selected purchases and retirements for the last fe" years.

1-. 3hich of the follo"in is not a control that should 'e esta'lished for purchases of
equipment4
%. Esta'lishin a 'udet for capital acquisitions.
5. 8equirin that the department in need of the equipment order the equipment.
C. 8equirin that the recei!in department recei!e the equipment.
D. Esta'lishin an accountin policy reardin the minimum dollar amount of purchase that
"ill 'e considered for capitali9ation.

13-3
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
1.. 3hich of the follo"in is not one of the auditors' o'&ecti!es in auditin depreciation4
%. Esta'lishin the reasona'leness of the client's replacement policy.
5. Esta'lishin that the methods used are appropriate.
C. Esta'lishin that the methods are consistently applied.
D. Esta'lishin the reasona'leness of depreciation computations.

10. 3hich of the follo"in is the 'est e!idence of continuous o"nership of property4
%. E/amination of the deed.
5. E/amination of rent receipts from lessees of the property.
C. E/amination of the title policy.
D. E/amination of canceled chec1 in payment for the property.

$2. 3hich of the follo"in 'est descri'es the auditors' typical o'ser!ation of plant and
equipment4
%. The auditors o'ser!e a physical in!entory of plant and equipment, annually.
5. The auditors o'ser!e all additions to plant and equipment made durin the year.
C. The auditors o'ser!e all ma&or plant and equipment items in the clients' accounts each year.
D. The auditors o'ser!e ma&or additions to plant and equipment made durin the year.

$1. 3hich of the follo"in is used to o'tain e!idence that the client's equipment accounts are
not understated4
%. %naly9in repairs and maintenance e/pense accounts.
5. :ouchin purchases of plant and equipment.
C. 8ecomputin depreciation e/pense.
D. %naly9in the miscellaneous re!enue account.

$$. 3hich of the follo"in is not a test primarily used to test property, plant and equipment
accounts for o!erstatement4
%. ,n!estiation of reductions in insurance co!erae.
5. 8e!ie" of property ta/ 'ills.
C. E/amination of retirement "or1 orders prepared durin the year.
D. :ouchin retirements of plant and equipment.

13-(
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
$3. % continuin audit client's property, plant and equipment and accounts recei!a'le accounts
ha!e appro/imately the same year-end 'alance. ,n this circumstance, "hen compared to
property, plant and equipment one "ould normally e/pect the audit of accounts recei!a'le to
require:
%. *ore audit time.
5. ;ess audit time.
C. %ppro/imately the same amount of audit time.
D. 7imilar confirmation procedures.

$(. 3hen comparin an initial audit "ith a su'sequent year audit for a particular client, the
scope of audit procedures for "hich of the follo"in accounts "ould 'e e/pected to decrease
the most4
%. %ccounts recei!a'le.
5. Cash.
C. *ar1eta'le securities.
D. Property, plant and equipment.

$). 3hen performin an audit of the property, plant and equipment accounts, an auditor
should e/pect "hich of the follo"in to 'e most li1ely to indicate a departure from enerally
accepted accountin principles4
%. 8epairs ha!e 'een capitali9ed to repair equipment that had 'ro1en do"n.
5. ,nterest has 'een capitali9ed for self-constructed assets.
C. %ssets ha!e 'een acquired from affiliated corporations "ith the related transactions
recorded and descri'ed in the financial statements.
D. The cost of freiht-in on an acquisition has 'een capitali9ed.

$+. The most li1ely technique for the current year audit of ood"ill "hich "as acquired three
years ao 'y a continuin audit client:
%. Confirmation.
5. 6'ser!ation.
C. 8ecomputation.
D. ,nquiry.

13-)
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
$-. #or "hich of the follo"in accounts is it most li1ely that most of the audit "or1 can 'e
performed in ad!ance of the 'alance sheet date4
%. %ccounts recei!a'le.
5. Cash.
C. Current mar1eta'le securities.
D. Property, plant and equipment.

$.. The auditors may e/pect a proper de'it to ood"ill due to:
%. Purchase of a trademar1.
5. Esta'lishment of an e/traordinarily profita'le product.
C. % 'usiness com'ination.
D. Capitali9ation of human resources.

$0. 3hich of the follo"in is a customary audit procedure for the !erification of the leal
o"nership of real property4
%. E/amination of correspondence "ith the corporate counsel concernin acquisition matters.
5. E/amination of o"nership documents reistered and on file at a pu'lic hall of records.
C. E/amination of corporate minutes and resolutions concernin the appro!al to acquire
property, plant and equipment.
D. E/amination of deeds and title uaranty policies on hand.

32. ,n !iolation of company policy, ;o"ell Company erroneously capitali9ed the cost of
paintin its "arehouse. The auditors e/aminin ;o"ell's financial statements "ould most
li1ely detect this "hen:
%. Discussin capitali9ation policies "ith ;o"ell's controller.
5. E/aminin maintenance e/pense accounts.
C. 6'ser!in, durin the physical in!entory o'ser!ation, that the "arehouse had 'een painted.
D. E/aminin the construction "or1 orders supportin items capitali9ed durin the year.

13-+
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
31. 3hich of the follo"in 'est descri'es the independent auditors' approach to o'tainin
satisfaction concernin depreciation e/pense in the income statement4
%. :erify the mathematical accuracy of the amounts chared to income as a result of
depreciation e/pense.
5. Determine the method for computin depreciation e/pense and ascertain that is in
accordance "ith enerally accepted accountin principles.
C. 8econcile the amount of depreciation e/pense to those amounts credited to accumulated
depreciation accounts.
D. Esta'lish the 'asis for deprecia'le assets and !erify the depreciation e/pense.

3$. The auditors are least li1ely to learn of retirements of equipment throuh "hich of the
follo"in4
%. 8e!ie" of the purchase returns and allo"ances account.
5. 8e!ie" of depreciation.
C. %nalysis of the de'its to the accumulated depreciation account.
D. 8e!ie" of insurance policy riders.

33. #or "hich of the follo"in leder accounts "ould the auditor 'e most li1ely to analy9e the
details to identify understatements of equipment acquisitions4
%. 7er!ice 8e!enue.
5. 7ales.
C. 8epairs and maintenance e/pense.
D. 7ales salaries e/pense.

3(. 3hich of the follo"in is the most important control procedure o!er acquisitions of
property, plant, and equipment4
%. Esta'lishin a "ritten company policy distinuishin 'et"een capital and re!enue
e/penditures.
5. <sin a 'udet to forecast and control acquisitions and retirements.
C. %naly9in monthly !ariances 'et"een authori9ed e/penditures and actual costs.
D. 8equirin acquisitions to 'e made 'y user departments.

13--
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
3). ,n the e/amination of property, plant, and equipment, the auditor tries to determine all of
the follo"in except the:
%. E/tent of the control ris1.
5. E/tent of property a'andoned durin the year.
C. %dequacy of replacement funds.
D. 8easona'leness of the depreciation.

3+. Property acquisitions that are misclassified as maintenance e/pense "ould most li1ely 'e
detected 'y an internal control system that pro!ides for:
%. ,n!estiation of !ariances "ithin a formal 'udetin system.
5. 8e!ie" and appro!al of the monthly depreciation entry 'y the plant super!isor.
C. 7ereation of duties of employees in the accounts paya'le department.
D. E/amination 'y the internal auditors of !endor in!oices and canceled chec1s for property
acquisitions.


Essay Questions

3-. Plant and equipment are not as inherently ris1y as are other assets, such as in!entories and
accounts recei!a'le. =o"e!er, a company should still endea!or to maintain effecti!e internal
control o!er plant and equipment.
a. Descri'e the principal purpose of internal controls relatin to plant and equipment.
'. ;ist and descri'e four ma&or controls applica'le to plant and equipment.




13-.
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
3.. %uditors should o'tain e!idence that there are no sinificant amounts of unrecorded
retirements of property, plant and equipment.
a. Descri'e t"o "ays that the auditors o'tain e!idence that there are no sinificant amounts of
unrecorded retirements of property >land?.
'. Descri'e three "ays that the auditors o'tain e!idence that there are no sinificant amounts
of unrecorded retirements of equipment.




13-0
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
Chapter 13 Property, Plant, and Equipment: Depreciation and Depletion %ns"er
@ey


True / False Questions

1. The auditors' approach to the audit of property, plant and equipment larely results from the
fact that relati!ely fe" transactions occur.
T!E

Difficulty: Easy

$. % ma&or control procedure related to plant and equipment is a 'udet for depreciation.
F"#$E

Difficulty: Medium

3. E!idence of continued o"nership of property is o'tained 'y !ouchin payments to a
mortae trustee.
T!E

Difficulty: Medium

(. The auditors typically o'ser!e all ma&or items of property, plant and equipment e!ery year.
F"#$E

Difficulty: Medium

13-12
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
). *aterial purchases of assets from an affiliated company should 'e disclosed in the financial
statements.
T!E

Difficulty: Easy

+. ,dle equipment "ill enerally need to 'e reclassified as a current asset.
F"#$E

Difficulty: Easy

-. The primary purpose of internal control o!er plant and equipment is to safeuard the assets
from theft.
F"#$E

Difficulty: Medium

.. % typical procedure in the audit of property is e/amination of pu'lic records to !erify the
o"nership of the property.
F"#$E

Difficulty: Hard

0. E!en "hen internal control is "ea1, a sinificant portion of the audit "or1 on property,
plant and equipment may 'e performed at an interim date.
T!E

Difficulty: Hard

12. ,n the audit of depletion the auditors must often rely on the "or1 of specialists.
T!E

Difficulty: Medium

13-11
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion

Multiple Choice Questions

11. %n auditor has identified numerous de'its to accumulated depreciation of equipment.
3hich of the follo"in is most li1ely4
%. The estimated remainin useful li!es of equipment "ere increased.
%& Plant assets "ere retired durin the year.
C. The prior year's deprecation e/pense "as erroneously understated.
D. 6!erhead allocations "ere re!ised at year-end.

Difficulty: Hard

1$. ,n testin for unrecorded retirements of equipment, an auditor miht.
"& 7elect items of equipment from the accountin records and then attempt to locate them
durin the plant tour.
5. Compare depreciation e/pense "ith the prior year's depreciation e/pense.
C. Trace equipment items o'ser!ed durin the plant tour to the equipment su'sidiary leder.
D. 7can the eneral &ournal for unusual equipment retirements.

Difficulty: Medium

13. % plant manaer "ould 'e most li1ely to pro!ide information on "hich of the follo"in4
%. %dequacy of the pro!ision for uncollecti'le accounts.
5. %ppropriateness of physical in!entory !aluation techniques.
C& E/istence of o'solete in!entory.
D. Deferral of certain purchases of office supplies.

Difficulty: Medium

13-1$
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
1(. 3hich of the follo"in "ould 'e least li1ely to address control o!er the initiation and
e/ecution of equipment transactions4
%. 8equests for ma&or repairs are appro!ed 'y a hiher le!el than the department initiatin the
request.
5. Prenum'ered purchase orders are used for equipment and periodically accounted for.
C. 8equests for purchases of equipment are re!ie"ed for consideration of solicitin
competiti!e 'ids.
D& Procedures e/ist to restrict access to equipment.

Difficulty: Hard

1). 3hen there are numerous property and equipment transactions durin the year, an auditor
"ho plans to assess control ris1 at a lo" le!el usually performs:
%. Tests of controls and e/tensi!e tests of property and equipment 'alances at the end of the
year.
5. %nalytical procedures for current year property and equipment transactions.
C& Tests of controls and limited tests of current year property and equipment transactions.
D. %nalytical procedures for property and equipment 'alances at the end of the year.

Difficulty: Hard

1+. 3hich of the follo"in 'est descri'es the auditors' approach to the audit of the endin
'alance of property, plant and equipment for a continuin nonpu'lic client4
%. Direct audit of the endin 'alance.
%& %reement of the 'einnin 'alance to prior year's "or1in papers and audit of sinificant
chanes in the accounts.
C. %udit of chanes in the accounts since inception of the company.
D. %udit of selected purchases and retirements for the last fe" years.

Difficulty: Medium

13-13
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
1-. 3hich of the follo"in is not a control that should 'e esta'lished for purchases of
equipment4
%. Esta'lishin a 'udet for capital acquisitions.
%& 8equirin that the department in need of the equipment order the equipment.
C. 8equirin that the recei!in department recei!e the equipment.
D. Esta'lishin an accountin policy reardin the minimum dollar amount of purchase that
"ill 'e considered for capitali9ation.

Difficulty: Medium

1.. 3hich of the follo"in is not one of the auditors' o'&ecti!es in auditin depreciation4
"& Esta'lishin the reasona'leness of the client's replacement policy.
5. Esta'lishin that the methods used are appropriate.
C. Esta'lishin that the methods are consistently applied.
D. Esta'lishin the reasona'leness of depreciation computations.

Difficulty: Easy

10. 3hich of the follo"in is the 'est e!idence of continuous o"nership of property4
%. E/amination of the deed.
%& E/amination of rent receipts from lessees of the property.
C. E/amination of the title policy.
D. E/amination of canceled chec1 in payment for the property.

Difficulty: Hard

$2. 3hich of the follo"in 'est descri'es the auditors' typical o'ser!ation of plant and
equipment4
%. The auditors o'ser!e a physical in!entory of plant and equipment, annually.
5. The auditors o'ser!e all additions to plant and equipment made durin the year.
C. The auditors o'ser!e all ma&or plant and equipment items in the clients' accounts each year.
D& The auditors o'ser!e ma&or additions to plant and equipment made durin the year.

Difficulty: Medium

13-1(
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
$1. 3hich of the follo"in is used to o'tain e!idence that the client's equipment accounts are
not understated4
"& %naly9in repairs and maintenance e/pense accounts.
5. :ouchin purchases of plant and equipment.
C. 8ecomputin depreciation e/pense.
D. %naly9in the miscellaneous re!enue account.

Difficulty: Hard

$$. 3hich of the follo"in is not a test primarily used to test property, plant and equipment
accounts for o!erstatement4
%. ,n!estiation of reductions in insurance co!erae.
5. 8e!ie" of property ta/ 'ills.
C. E/amination of retirement "or1 orders prepared durin the year.
D& :ouchin retirements of plant and equipment.

Difficulty: Hard

$3. % continuin audit client's property, plant and equipment and accounts recei!a'le accounts
ha!e appro/imately the same year-end 'alance. ,n this circumstance, "hen compared to
property, plant and equipment one "ould normally e/pect the audit of accounts recei!a'le to
require:
"& *ore audit time.
5. ;ess audit time.
C. %ppro/imately the same amount of audit time.
D. 7imilar confirmation procedures.

Difficulty: Medium

13-1)
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
$(. 3hen comparin an initial audit "ith a su'sequent year audit for a particular client, the
scope of audit procedures for "hich of the follo"in accounts "ould 'e e/pected to decrease
the most4
%. %ccounts recei!a'le.
5. Cash.
C. *ar1eta'le securities.
D& Property, plant and equipment.

Difficulty: Medium

$). 3hen performin an audit of the property, plant and equipment accounts, an auditor
should e/pect "hich of the follo"in to 'e most li1ely to indicate a departure from enerally
accepted accountin principles4
"& 8epairs ha!e 'een capitali9ed to repair equipment that had 'ro1en do"n.
5. ,nterest has 'een capitali9ed for self-constructed assets.
C. %ssets ha!e 'een acquired from affiliated corporations "ith the related transactions
recorded and descri'ed in the financial statements.
D. The cost of freiht-in on an acquisition has 'een capitali9ed.

Difficulty: Medium

$+. The most li1ely technique for the current year audit of ood"ill "hich "as acquired three
years ao 'y a continuin audit client:
%. Confirmation.
5. 6'ser!ation.
C& 8ecomputation.
D. ,nquiry.

Difficulty: Medium

13-1+
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
$-. #or "hich of the follo"in accounts is it most li1ely that most of the audit "or1 can 'e
performed in ad!ance of the 'alance sheet date4
%. %ccounts recei!a'le.
5. Cash.
C. Current mar1eta'le securities.
D& Property, plant and equipment.

Difficulty: Medium

$.. The auditors may e/pect a proper de'it to ood"ill due to:
%. Purchase of a trademar1.
5. Esta'lishment of an e/traordinarily profita'le product.
C& % 'usiness com'ination.
D. Capitali9ation of human resources.

Difficulty: Medium

$0. 3hich of the follo"in is a customary audit procedure for the !erification of the leal
o"nership of real property4
%. E/amination of correspondence "ith the corporate counsel concernin acquisition matters.
5. E/amination of o"nership documents reistered and on file at a pu'lic hall of records.
C. E/amination of corporate minutes and resolutions concernin the appro!al to acquire
property, plant and equipment.
D& E/amination of deeds and title uaranty policies on hand.

Difficulty: Medium
Source: AICPA

32. ,n !iolation of company policy, ;o"ell Company erroneously capitali9ed the cost of
paintin its "arehouse. The auditors e/aminin ;o"ell's financial statements "ould most
li1ely detect this "hen:
%. Discussin capitali9ation policies "ith ;o"ell's controller.
5. E/aminin maintenance e/pense accounts.
C. 6'ser!in, durin the physical in!entory o'ser!ation, that the "arehouse had 'een painted.
D& E/aminin the construction "or1 orders supportin items capitali9ed durin the year.

Difficulty: Medium
Source: AICPA

13-1-
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
31. 3hich of the follo"in 'est descri'es the independent auditors' approach to o'tainin
satisfaction concernin depreciation e/pense in the income statement4
%. :erify the mathematical accuracy of the amounts chared to income as a result of
depreciation e/pense.
5. Determine the method for computin depreciation e/pense and ascertain that is in
accordance "ith enerally accepted accountin principles.
C. 8econcile the amount of depreciation e/pense to those amounts credited to accumulated
depreciation accounts.
D& Esta'lish the 'asis for deprecia'le assets and !erify the depreciation e/pense.

Difficulty: Medium
Source: AICPA

3$. The auditors are least li1ely to learn of retirements of equipment throuh "hich of the
follo"in4
"& 8e!ie" of the purchase returns and allo"ances account.
5. 8e!ie" of depreciation.
C. %nalysis of the de'its to the accumulated depreciation account.
D. 8e!ie" of insurance policy riders.

Difficulty: Hard
Source: AICPA

33. #or "hich of the follo"in leder accounts "ould the auditor 'e most li1ely to analy9e the
details to identify understatements of equipment acquisitions4
%. 7er!ice 8e!enue.
5. 7ales.
C& 8epairs and maintenance e/pense.
D. 7ales salaries e/pense.

Difficulty: Medium
Source: AICPA

13-1.
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
3(. 3hich of the follo"in is the most important control procedure o!er acquisitions of
property, plant, and equipment4
%. Esta'lishin a "ritten company policy distinuishin 'et"een capital and re!enue
e/penditures.
%& <sin a 'udet to forecast and control acquisitions and retirements.
C. %naly9in monthly !ariances 'et"een authori9ed e/penditures and actual costs.
D. 8equirin acquisitions to 'e made 'y user departments.

Difficulty: Medium
Source: AICPA

3). ,n the e/amination of property, plant, and equipment, the auditor tries to determine all of
the follo"in except the:
%. E/tent of the control ris1.
5. E/tent of property a'andoned durin the year.
C& %dequacy of replacement funds.
D. 8easona'leness of the depreciation.

Difficulty: Easy
Source: AICPA

3+. Property acquisitions that are misclassified as maintenance e/pense "ould most li1ely 'e
detected 'y an internal control system that pro!ides for:
"& ,n!estiation of !ariances "ithin a formal 'udetin system.
5. 8e!ie" and appro!al of the monthly depreciation entry 'y the plant super!isor.
C. 7ereation of duties of employees in the accounts paya'le department.
D. E/amination 'y the internal auditors of !endor in!oices and canceled chec1s for property
acquisitions.

Difficulty: Medium
Source: AICPA


13-10
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
Essay Questions

3-. Plant and equipment are not as inherently ris1y as are other assets, such as in!entories and
accounts recei!a'le. =o"e!er, a company should still endea!or to maintain effecti!e internal
control o!er plant and equipment.
a. Descri'e the principal purpose of internal controls relatin to plant and equipment.
'. ;ist and descri'e four ma&or controls applica'le to plant and equipment.
a. The principal purpose of internal controls relatin to plant and equipment is to o'tain
ma/imum efficiency from the dollars in!ested in plant assets.
'. The follo"in are ma&or internal controls for plant and equipment >only four required?:
<se of a plant 'udet to forecast and control acquisitions and retirements.
*aintainin su'sidiary leder of property.
Esta'lishin a system of authori9ations for acquisitions.
% "ritten statement of company policy distinuishin 'et"een capital and re!enue
e/penditures.
% policy requirin all purchases of plant and equipment throuh normal purchasin and
recei!in procedures.
Periodic physical in!entories.
% system of retirement procedures, includin serially num'ered retirement "or1 orders.

Difficulty: Hard

13-$2
Chapter 13 - Property, Plant, and Equipment: Depreciation and Depletion
3.. %uditors should o'tain e!idence that there are no sinificant amounts of unrecorded
retirements of property, plant and equipment.
a. Descri'e t"o "ays that the auditors o'tain e!idence that there are no sinificant amounts of
unrecorded retirements of property >land?.
'. Descri'e three "ays that the auditors o'tain e!idence that there are no sinificant amounts
of unrecorded retirements of equipment.
a. The auditors o'tain e!idence that there are no sinificant amounts of unrecorded
retirements of property 'y >only t"o required?:
E/amination of property ta/ 'ills.
:ouchin rent receipts from lessees.
E/amination of payments to mortaee or trustee.
'. The auditors o'tain e!idence that there are no sinificant amounts of unrecorded
retirements of equipment 'y >only three required?:
#or ma&or purchases, in!estiate related retirements.
%naly9e the *iscellaneous 8e!enue account to locate cash proceeds from sale of
equipment.
#or discontinued operations, in!estiate related retirements.
,nquire of e/ecuti!es and super!isors.
,n!estiate reductions in insurance co!erae.

Difficulty: Hard

13-$1