Goodwill Financial Consultants Limited, P. O. Box 35814, Dar es alaam. CP!

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!$D%& OF F%'!'C%!L &!&(*('& -.13 /uestion One 0'B!! *!1 -..-2

Your firm is the auditor of Daywaka Insurance Brokers Ltd. which operates from a number of branches and provides insurance for the general public. The company obtains insurance from large insurance companies and takes a commission for its services. You have been asked to audit certain aspects of the company!s fi"ed assets for the year ended #$ %une &$$$. The company!s main fi"ed assets comprise' ()* +reehold land and buildings, (&* -icrocomputers printers and related e.uipment which are used by staff and, (#* /ars which are provided to directors and sales people who visit customers. The company has been operating for a number of years and it maintains details of its office e.uipment and cars on a computeri0ed fi"ed asset register. The company uses the following depreciation rates' ()* Buildings &1 per annum on cost (&* 2ffice e.uipment (including computers )$1 per annum on cost (#* -otor vehicles (i.e. cars &31 per annum on cost You are concerned that the depreciation rate for the computers may be inade.uate. 2n ) %uly )444 Daywaka Insurance Brokers purchased a competitor!s trade for shs. 3 $$$ $$$. This comprised the competitor!s customers and trade name but it did not include any other assets or liabilities. In the financial statements for the year ended #$ %une &$$$ the goodwill had been included in the balance sheet and it is being amortised over a period of )$ years. "(/$%"(D (a* Descri,e +ow you would verify the ownership of' (i* +reehold land and buildings, (ii* /omputers and cars 03 mar4s2 (b* (I* Descri,e t+e in#esti5ations you would carry out to determine whether the depreciation rate of the computers is ade.uate. (ii* Descri,e t+e 6actors you would consider when deciding whether to .ualify your audit report on the understatement of the depreciation of the computers.

5ssuming you decide to .ualify your audit report on the understatement of depreciation on the office e.uipment you should describe the form of .ualified audit report would use 011 mar4s2 0&otal 7 -. mar4s2

Stanley R. CV ATEC II, B.Com (Finance), MSC A &F, CPA (T) 071 !00 !1"

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Goodwill Financial Consultants Limited, P. O. Box 35814, Dar es alaam. CP! "e#iews
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/uestion &wo Your firm has successfully tendered for the audit of Yates /ompany a private national haulage and distribution company with over & $$$ employees. This long6established company provides refrigerated bulk and heavy haulage transport services to time6 sensitive delivery schedules. You have obtained the following financial information from Yates' For the year to 30 June 2006 2005 Draft Actual &s+s. * &s+s. * ):).3 );;.; _____ _____ <<.$ =;.= ;$.: #3.: <.3 4.3 )4.: &#.& &.4 &.& ____ ____ )34.: );3.& ____ ____ ).4 ($.<* ____ ____ =.& 6 6 33.) ):.; =.; $.: )#.= #.; ____ )$#.< ____ 4.= #.$ 3.; )#.< <.3 :.& 3=.< ):.$ 4.# $.3 )#.; &.< ____ )$:.$ ____ )$.< #.# ;.; )#.) =.4

7tatement of comprehensive income 8evenue (9otre )* -aterials e"pense (9ote &* 7taff costs Depreciation and amorti0ation 2ther e"penses +inance costs Total e"penses >rofit?(Loss* before ta"ation 7tatement of financial position Intangible assets (9ote #* Tangible assets (9ote ;* 6 >roperty 6 @ehicles and transport e.uipment 2ther e.uipment Inventories Trade receivables (9ote 3* /ash and cash e.uivalents Total assets >rovisions 8estructuring (9ote :* Ta" provision Liabilities +inance lease liabilities (9ote =* Trade payables 2ther liabilities (9ote <*

Stanley R. CV ATEC II, B.Com (Finance), MSC A &F, CPA (T) 071 !00 !1"

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Goodwill Financial Consultants Limited, P. O. Box 35814, Dar es alaam. CP! "e#iews
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Total liabilities

____ ;$.; ____

_____ #4.3 _____

Notes: ()* 8evenue is net of rebates to maAor customers that increase with the volume of consignments transported. 8ebates are calculated on cumulative sales for the financial year and awarded .uarterly arrears. (&* -aterial e"pense includes fuel repair materials transportation and vehicle maintenance costs. (#* >urchased intangible assets including software and industrial licences are accounted for using the cost model. Internally generated intangible assets mainly software developed for customers to generate consignment documents are initially recogni0ed at cot if the assets recognition criteria are satisfied. (;* -ovements on tangible non6current assets have been drafted as follows' Property Vehicles and transport equip en t "shs# $ "shs# $ =3.= &3.: ).; (&.3* ____ =;.: ____ Depreciation and impairment losses 2pening balance at ) %uly &$$3 Depreciation and impairment loss Disposals /losing balance at #$ %une &$$: )=.4 &.; ($.<* ____ )4.3 ____ &.= (&.:* ____ &3.= ____ 4.: ).4 (&.&* ____ 4.# ____ !ther equip en t "shs# $ )=.< ).) ().;* ____ )=.3 ____ <.3 &.3 ($.4* ____ )$.) ____ "otal

Bistorical cost 2pening balance at ) %uly &$$3 5dditions Disposals /losing balance at #$ %une &$$:

"shs# $ ))4.) 3.& (:.3* ____ ))=.< ____ #:.$ :.< (#.4* ____ #<.4 ____

Stanley R. CV ATEC II, B.Com (Finance), MSC A &F, CPA (T) 071 !00 !1"

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Goodwill Financial Consultants Limited, P. O. Box 35814, Dar es alaam. CP! "e#iews
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/arrying amount at #$ %une &$$:

33.)

):.;

=.;

=<.4

____ ____ ____ ____ /arrying amount at #$ %une 3=.< ):.$ 4.# <#.) &$$3 Depreciation is charged using the straight6line method assuming the following useful lives' >roperty @ehicles and transport e.uipment 2ther e.uipment %ears : to :$ # to < # to )3

(3* Trade receivables are carried at their principal amount less allowances for impairment. (:* The restructuring provision relates to employee termination and other obligations arising on the closure and relocation of distribution depots in December &$$; (=* +inance leases are capitali0ed at the date of inception of the lease at fir value or the present value of the minimum lease payments if less. (<* 2ther liabilities include amounts due to employees for accrued wages and salaries overtime sick leave maternity pay and bonuses. &equired: In respect of the financial statements audit of Yates /ompany for the year ending #$ %une &$$:' (a* /alculate preliminary materiality and Austify the suitability of your assessment. (b* Identify and e"plain the financial statement risks to be taken into account in planning the financial audit. (c* C"plain the e"tent to which you should plan to place reliance on analytical procedures as audit evidence. (d* Briefly describe the principal audit work to be performed in respect of the carrying amount of the following items in the statement of financial position' (i* Trade receivables, and (ii* @ehicles /uestion &+ree The balance sheets of >iper Block -akers Limited /ontains the item 9on6current assets tangible at Tshs. ;& million. The items under this heading consist of plant and machinery. &equired: (a* Discuss briefly the considerations that underlie the recognition of capital e"penditure (b* List the audit tests and en.uires that you would make in respect of this item. (c* Dhat are the obAectives of establishing controls for plant and e.uipmentsE

Stanley R. CV ATEC II, B.Com (Finance), MSC A &F, CPA (T) 071 !00 !1"

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Goodwill Financial Consultants Limited, P. O. Box 35814, Dar es alaam. CP! "e#iews
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/uestion Four (a* Dhat is an audit programE (b* You are provided with the following details of the 9on6current assets of T59TI-BC8 Limited a company engaged in the manufacture and sale of timber boarding and timber product such as doors window frames and furniture. Cost Balance at ) %anuary )44= 5dditions Disposals Balance at #) Dec. )44= Depreciation' Balance at ) %anuary 4= /harge Disposal Balance at #) Dec. )44= 9et book value' 5t %anuary 5t #) December >rofit and losses on disposal, +reehold land and building >lant and machinery -otor vehicles Free+old land 8 ,uildin5s +s 9...: )$$ $$$ 3$ $$$ 6&3 $$$ );= 3$$ &3 $$$ ) <;; 64#< &3 4$: =3 $$$ )&) 34; 7hs. F$$$G ;< ;#< (&: =#;* &$$ &) 4$; Plan and *ac+iner; +s. 9...: &=; 4;$ )43 &$$ 6:) ;:$ ;$< :<$ 4$ ;$) ;) 3=3 6&: 4=: )$3 $$$ )<; 3#4 #$# :<$ *otor &otal #e+icles +s. +s. 9...: 9...: =: $$$ ;3$ 4;$ &$ $$$ &:3 &$$ 6&# $$$ 6<: 4:$ =# $$$ :&4 )<$ ;< <$$ ):; &$) ); :$$ 3< $)4 6&) ;$$ 6;4 #); ;& $$$ )=& 4$: &= &$$ &<: =#4 #) $$$ ;3: &=;

The directors have entered into contact for the purchase of plant and machinery amounting to Tshs. 3$ $$$ $$$?H. The directors have further decided purchase additional plant and machinery amounting to 7hs. ;3 $$$ $$$?H but contracts have not yet been placed. The directors have decided that the freehold land and building should be revalued on an e"isting uses basis as at #) December )44=. Depreciation rates are' 6 Buildings over ;$ yearGs straight line. >lant and machinery' +rom =.31 to )31 straight line.

Stanley R. CV ATEC II, B.Com (Finance), MSC A &F, CPA (T) 071 !00 !1"

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Goodwill Financial Consultants Limited, P. O. Box 35814, Dar es alaam. CP! "e#iews
____________________________________________________________________________ ______

-otor vehicle' &$1 straight line.

&equired: Draft an audit program for' (i* 9on6current assets additions during the year (ii* 9on6current assets disposals during the year (iii* +i"ed assets held as at #) December )44= (iv* The depreciation charge for the year /uestion Fi#e The following table of tangible fi"ed appeared in the draft final accounts of Dar es 7alaam Cngineering /ompany Limited a large manufacturing concern as at #) st -arch &$$). Land and ,uildin5s +s. *illions ):) : # ()* ):) #$ 3 6 #3 )#; )#) Plant and e<ui=ment +s. *illions 4=: )&; &4 ()<* ) ))) #4= << ()<* ;:= :;; 3=4 !ssets in course o6 construction +s. *illions )# #3 (#&* 6 ): 6 6 6 6 ): )# &otal cost +s. *illions ) )3$ ):3 6 ()4* ) &4: ;&= 4# ()<* 3$& =4; =&#

Balance ).;.$$ 5dditions Transfers Disposals Total cost at #).#.&$$) Depreciation Balance ).;.$$ Total depreciation at #).#.$$ 9et book value at #).#.$) 9et book value at #).#.$$

'otes> The net book value of land and buildings at #).#.&$$) comprised' -illions +reeholds )): Long leases 44 year < 7hort leases )$ )#; The company statement of accounting policies included the followings

Stanley R. CV ATEC II, B.Com (Finance), MSC A &F, CPA (T) 071 !00 !1"

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Goodwill Financial Consultants Limited, P. O. Box 35814, Dar es alaam. CP! "e#iews
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). Tangible 9on6current assets are stated at historical cost less depreciation where assets are constructed by the companyGs employees cost includes materials direct labor and related overheads. &. Deprecation of plant and e.uipment is provided on a straight line basis from the time assets are brought into use so as to write off their historical costs over their estimated useful lives. The companyGs directorGs report included the following' I+ollowing a professional valuation of a proportion of the companyGs land and buildings the directors are of the opinion that there was no significant difference between market and book values of #)st -arch &$$). The companyGs profit and loss account for the year ended #) st -arch &$$) included the following' >rofit and loss account for the year ended #) st -arch &$$) profit on ordinary activities 7hs. )$$ million. &equired: (a* (i* 7tate Three general obAectives the auditors of Dar es 7alaam Cngineering /ompany Limited would be seeking to achieve in their audit of the companyGs 9on6current assets' (iii* Draft an audit programme which you could use to audit the companyGs plant and e.uipment and assets in the course of construction. (b* During the course of your audit of the 9on6current assets of Dar es 7alaam Cngineering /ompany Limited on #)st -arch &$$) two problems were noted. (i* The calculates of the cost of direct labour incurred on assets in the course of construction by the companyGs employees have been accidentally destroyed for the early part of year. The direct labour cost involved is shs. )$ $$$ $$$?H (ii* The company has received a government grant of shs. &3 $$$ $$$?H towards the cost of lant and e.uipment ac.uired during the year and e"pected to last for ten years. The grant has been credited in full to the profit and loss account as e"ception income &equired: (i* 7tate whether you feel that a .ualified audit report would be necessary for each of the two circumstances outlined in (a* and (b* above giving reasons in (ii* 2n the assumption that you decide that a .ualified audit report is necessary with respect to the treatment of the government grant draft the section of the report describing the matter (the whole report is not re.uired*. (iii* 2utline the auditorGs general responsibility with regard to the statement in the directorGs report concerning the valuations of land and buildings.

Stanley R. CV ATEC II, B.Com (Finance), MSC A &F, CPA (T) 071 !00 !1"

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