Assignment 02 Audit of Property, Plant and Equipment

You obtained the following information in the course of your audit of Hwang Corporation.

Hwang Corporation has engaged in a number of expenditures relating to a land acquisition for a
future plant. For each of the following, indicate whether you as the auditor of Hwang
Corporation would propose an adjusting entry. Assume all transactions are material.

Yes—Write your proposed adjusting entry in the space provided.

No—Write “NONE and the REASON” if adjusting entry is not necessary.

Situation Auditor’s Response

a. Hwang purchased land for a new plant that None, because the commission paid to the
it intends to construct. A portion of the cost real estate agent is capitalizable to the cost of
wasa commission paid to a real estate agent. the land according to PAS 16.
That commission was capitalized as part of
the cost of the land.

b. The purchased land was in part financed Interest expense xxx

through obtaining a loan from a financial
institution. Interest on that loan is being Land xxx
capitalized as part of the cost of the land.
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c. An existing building on the land was torn
down to allow construction of a new building
on the land. The cost of the demolition was
capitalized as part of the cost of the new
building.
None, because such cost is capitalizable to the
cost of the new building according to PAS 16
par. 58 that net demolition cost will be
capitalizable to the cost of the new building.

d. Subsequent to the land purchase, Hwang None, because it is the right thing to record
purchased certain equipment from a vendor the purchase price as the cost of the
who had led for bankruptcy. Hwang’s equipment based on PAS 16.
management believes that the equipment was
purchased for an amount equal to
approximately half what at least one other
supplier sells it for. Hwang recorded the
transaction at its cost.

e. Hwang cut down a number of trees on the Other income xxx

newly purchased land and sold the wood.
Other income was recorded on the transaction Other gains xxx
for the amount of the cash received.
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