Question 1 (12.5 marks)

Your firm is the auditor of GreenBrown Ltd, a manufacturer. You have obtained a summary of

the property, plant and equipment for the year ended 30 June 2015, which identifies cost and

accumulated depreciation brought forward, additions and disposals in the year and depreciation

charges.

 A review of the management letter from the previous year’s audit shows that there were some

problems in relation to making a distinction between capital and revenue expenditure; some

items were capitalised when they should have been expensed and other capital items were

included in repairs and maintenance in the income statement.

Another risk identified from prior years relates to depreciation calculations; there is a range of

depreciation rates within categories and there has been concern that the rates applied to some

assets have been too low. The depreciation policy disclosed in the financial report shows:

 buildings: 2–4% straight line

 plant and machinery: 5–10% straight line

 fixtures fittings and equipment: 5–20% straight line.

Required

Describe audit procedures to ensure:

(a) the accuracy of the summary of property plant and equipment

(b) all items of a capital expenditure are included in additions for the year and that no

revenue expenditure has been capitalized

(c) the depreciation rates are calculated appropriately.

Question 2 (12.5 marks)

You attended the inventory count of your client Davis Hydraulics Ltd. You observed the

following during the count.

1. Warehouse staff counted specific areas of the stock as determined by the warehouse

Supervisor; staff members, including the warehouse supervisor, were allocated their own

area to count.

2. Several blank paper sheets were issued to count staff for recording stock counted.

3. Staff were instructed to write down the stock description and number counted.

4. Staff were told to write the stock quantities in pencil on the sheets to ensure errors can be

corrected.

5. Any staff that completed a section early were allocated to another area to help out one of the

other staff.

6. The supervisor collected all sheets at the end of the count to finalise the stock count.

Required

Identify the weaknesses in the stocktake procedures above and identify how they could be

improved

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