UNIT 7 CONCEPT TEST – QUIZ SCENARIO

You have been the auditor of Rounders Ltd for some years now. The following are some facts
pertinent to the current audit of the company:

1. The company manufactures insecticides and other pest control products and wholesales to
the trade.
2. The company’s year-end is 30/June.
3. The following information has been extracted from the unqualified 31/June/20x1 audited
annual financial statements of the company.

STATEMENT OF FINANCIAL POSITION

20x1
(R’000s)
Assets
Non –current assets
Property, Plant and equipment 900
Land and buildings 700
Plant and motor Vehicles 200

Current Assets 350

Inventories 150
Trade Receivables 200

Total Assets 1 250

Equity and Liabilities

Shareholders’ equity and reserves 750

Non-current liabilities
Interest-bearing long-term loans 300

Current liabilities 200

Trade payables 150
Bank overdraft 50

Total Equity and Liabilities 1 250

1
4. Revenue and operating results for the year ended 20x0, 20x1 and those budgeted for the
year ending 20x2 are as follows:

Revenue Gross Profit Profit before tax

(loss)
Actual 20x0 1 660 000 310 000 165 000
Actual 20x1 1 540 000 225 000 (30 000)
Budget20x2 2 000 000 400 000 200 000

5. The 20x2 budgeted figures have been based on the following assumptions:
• Increased investment in Property, Plant and Equipment of R200 000 will enable the
production of products to meet the sales budget.
• The increased investment will be financed predominantly out of a fresh issue of shares
worth R150 000.
• The improvement in the South African economy, following the easing of lockdowns will
allow the company to meet its sales targets at the profit margins for which it budgeted.
• The benefits of the substantial advertising campaign launched during 20x1 financial year
will come through during the current year. The cost of the campaign, apart from poor
industry performance overall in 20x0-20x1 was the main reason for the company suffering
a loss for the 20x1 financial year.
• You are today, 28/March/ 20x2, in the process of planning the audit of the company for
the 20x2 financial year. Your preliminary enquiries from management in this regard have
revealed that management’s planned action to reverse the poor trading result of the
previous year appears to be working and at this stage likely that the 20x2 budgeted results
will be achieved.

YOU ARE REQUIRED TO:

Answer the QUIZ questions on Moodle. All questions in the quiz are based on the scenario
above.