Case study 5

Wear Wraith (WW) Co’s main activity is the extraction and supply of building materials including sand, gravel, cement
and similar aggregates. The company’s year end is 31 May and your firm has audited WW for a number of years.
The main asset on the balance sheet relates to non current assets. A junior member of staff has attempted to prepare the
non-current asset note for the financial statements. The note has not been reviewed by the senior accountant and so may
contain errors.
Land and Plant and Motor Railway Total
buildings machinery vehicles trucks
COST $ $ $ $ $
1 June 2005 100,000 875,000 1,500,000 – 2,475,000
Additions 10,000 125,000 525,000 995,000 1,655,000
Disposals – (100,000) (325,000) – (425,000)
–––––––– –––––––– ––––––––– ––––––– –––––––––
31 May 2006 110,000 900,000 1,700,000 995,000 3,705,000
–––––––– –––––––– ––––––––– ––––––– –––––––––
Depreciation
1 June 2005 60,000 550,000 750,000 – 1,360,000
Charge 2,200 180,000 425,000 199,000 806,200
Disposals – (120,000) (325,000) – (445,000)
–––––––– –––––––– ––––––––– –––––––– –––––––––
31 May 2006 62,200 610,000 850,000 199,000 1,721,200
–––––––– –––––––– ––––––––– ––––––– –––––––––
Net Book Value
31 May 2006 47,800 290,000 850,000 796,000 1,983,800
–––––––– –––––––– ––––––––– ––––––– –––––––––
Net Book Value
31 May 2005 40,000 325,000 750,000 – 1,115,000
–––––––– –––––––– ––––––––– ––––––– –––––––––
– Land and buildings relate to company offices and land for those offices.
– Plant and machinery includes extraction equipment such as diggers and dumper trucks used to
extract sand and gravel etc.
– Motor vehicles include large trucks to transport the sand, gravel etc.
– Railway trucks relate to containers used to transport sand and gravel over long distances on the railway
network.
Depreciation rates stated in the financial statements are all based on cost and calculated using the
straight line basis. The rates are:
Land and buildings 2%
Plant and machinery 20%
Motor vehicles 33%
Railway trucks 20%
Disposals in the motor vehicles category relates to vehicles which were five years old.
Required:
(a) List the audit work you should perform on railway trucks.
(b) You have just completed your analytical procedures of the non-current assets note.
Required:
(i) Excluding railway trucks, identify and explain any issues with the non-current asset note to raise
with management.
(ii) Explain how each issue could be resolved.