Group 18: Audit of Items of Financial Statements

Allotted is not paid A company validly allots 10000 shares of Rs 10 each, fully called. Only Rs 80000 cash is received;Rs 20000 calls remain unpaid. Accounts describe Rs 100000 asfully paidcapital. The exercise supplies lawful allotment and calls; it does not ask for issue-law advice. Required: Identify the item-specific audit issues, supported correction and evidence needed. (3 marks)

An issue premium is merged into share capital A company validly issues 5000 shares of Rs 10 facevalue at Rs 14 each, with all Rs 70000 received. Accounts credit Rs 70000 toequityshare capital. Board/allotment records confirm the stated issue. No costs or other statutory questions are involved. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

An appropriation hides a known liability A company owes Rs 4 lakh for an already-delivered legal service. Invoice and obligation are verified. Instead of expense/payable, it transfers Rs 4 lakh fromretained earnings to a"legalreserve". Management argues a reserve prevents omission of liabilities. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

The principal agrees but interest does not A bank confirms Rs 50 lakh principal, all outstanding for the whole year at 12% simple annual interest. Recorded finance cost and interest liability are Rs 4 lakh; no interest paid, capitalisation or other adjustment applies. Management says matched principal proves complete borrowing accounts. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

A year-end rollover conceals a new loan and a restricted deposit Opening loan is Rs 30 lakh. During the year Rs 10 lakh new borrowing is received and Rs 8 lakh principal repaid; both bank movements are verified. Ledger remains Rs 30 lakh because management calls the flows "temporary rollover". Lender confirms Rs 32 lakh closing principal plus Rs 150000 unpaid interest not recorded. A separate Rs 5 lakh bank deposit is pledged as security; management nets it against debt without a supplied right of set-off. Accounts also say the loan is unsecured. The exercise requires gross debt/deposit presentation; no tax or other adjustments. Required: Identify the item-specific audit issues, supported correction and evidence needed. (10 marks)

A confirmation is wrongly called a collection test A debtor confirms Rs 6 lakh owed. The debtor is insolvent; reliable recovery evidence supports only Rs 2 lakh. Accounts carry Rs 6 lakh with no allowance. The supplied valuation rule is carrying amount less supported recovery. Required: Identify the item-specific audit issues, supported correction and evidence needed. (3 marks)

A customer returns the auditor's letter through management Confirmation requests and replies pass entirely through the credit manager. The manager supplies a scanned"agreed"reply for a material debtor and refuses direct follow-up. The debtor's authenticity has not been established. Subsequent receipts cover only 20% of balance. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

An IOU is counted as cash Cashbook is Rs 100000. Simultaneous count finds Rs 76000 currency and a signed approved employee IOU of Rs 24000 for an advance. Accounts include theIOU as cash; advance is recoverable and not previously separately posted. No missing currency is otherwise proved. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

A bank debit is left as a permanent reconciling item Ledger bank balance Rs 250000; bank statement Rs 244000. The only difference is Rs 6000 verified bank charges for the year, not entered in books. Management keeps the amount in reconciliation and says that means no adjustment is needed. No timing difference applies. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

One count includes consignment stock and omits warehouse goods A trader records 1000 units at Rs 120 each. Count lists include 200 units held on consignment belonging to a supplier and 800 owned units. A separate 150 owned units at a third-party warehouse were omitted; warehouse confirmation is authentic. Of the 800 owned on-site units,50 damaged units have NRV Rs 70 each; all other owned units have NRVat least cost. The exercise uses lower of cost and NRV, no other cost or tax issues. Management claims count agreement proves recorded value Rs 120000. Required: Identify the item-specific audit issues, supported correction and evidence needed. (10 marks)

The invoice arrives after the inventory count A manufacturer receives and owns goods costing Rs 90000 before year-end. Goods are included in counted inventory, but neither purchase nor supplier liability is booked because the invoice arrives next month. Management proposes adding Rs 90000 to inventory again when recording the invoice. The exercise supplies ownership at receipt and proper inclusion in closing stock. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

Selling price is used instead of net realisable value Inventory has 100 units at cost Rs 500 each. Expected selling price is Rs 520 per unit, but completion cost is Rs 40 and selling cost Rs 30 per unit. Management says no write-down is required because selling price exceeds cost. The supplied criterion is lower of cost and net realisable value, defined as selling price less completion and selling costs. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

The factory-opening party is included in machinery cost An enterprise applying AS10 buys machinery for Rs 12 lakh less Rs 1 lakh trade discount. Non-refundable duty is Rs 80000, delivery Rs 30000 and installation Rs 90000, all directly attributable. It also spends Rs 50000 on an opening party, Rs 70000 on general staff training and Rs 40000 on advertising. All costs are capitalised. No restoration obligation, testing proceeds or other cost applies. The machine is available for use at year-end; depreciation amount is not asked. Required: Identify the item-specific audit issues, supported correction and evidence needed. (10 marks)

An idle machine is removed from the register An AS10 enterprise temporarily stops production for three months. Its machine remains controlled, repairable and intended for later use. It is not held for disposal and is not fully depreciated. The straight-line policy applies. Management deletes the asset and stops depreciation solely because it is idle. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

Sale proceeds are recorded but the old asset remains A machine is sold for Rs 260000 cash. Original cost Rs 600000 and accumulated depreciation to the disposal date Rs 400000 are verified. Accounts credit all proceeds to other income and leave the asset and accumulated depreciation unchanged. No disposal costs or tax apply. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

A research budget is called an intangible asset Under the explicitly supplied AS26 research criterion, an enterprise spends Rs 8 lakh investigating whether a new process is feasible. The project remains in research at year-end. Management capitalises the whole amount because the board expects a valuable patent eventually. Required: Identify the item-specific audit issues, supported correction and evidence needed. (3 marks)

A licence permits use but not ownership of the software An entity pays Rs 300000 for a three-year software-use licence and records an intangible labelled "ownership of source code". Agreement permits limited use, prohibits transfer and leaves source-code ownership with the vendor. For this exercise the identifiable controlled use right meets the applicable recognition criteria; classification as a service contract is excluded. No amortisation amount is supplied. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

A supplier with a zero ledger balance is left out A major supplier has a nil year-end ledger balance. After year-end the entity pays Rs 180000 for goods delivered and owned before year-end; no liability was posted and the goods are already included in closing inventory. The audit selects creditors only by positive ledger balances. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

A duplicate invoice survives supplier reconciliation The same verified Rs 75000 invoice is posted twice to repairs expense and supplier payable. Supplier confirms one invoice outstanding at Rs 75000. Management accepts the difference as "supplier timing" despite matching invoice numbers and no second work order. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

A capital advance becomes an expense without delivery An entity pays Rs 6 lakh to order a machine, cancellable with full refund under the verified contract. At year-end no delivery/control or construction service has occurred, supplier confirms the amount, and recovery is supported. Accounts expense Rs 6 lakh as maintenance and call the payment "settled". No machine asset is recognised. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

The warranty model omits a product line An enterprise's supplied warranty criteria require a present obligation from products sold, probable outflows and a reliable estimate. Current sales comprise 1000 units of product A and 500 of B. Reliable estimates are 10% of A needing Rs 400 repairs and 20% of B needing Rs 700 repairs. B is omitted from the model. Recorded provision is Rs 40000; no claims paid or other warranty balance applies. Management's expert confirms the data but worked from the incomplete A-only list. Required: Identify the item-specific audit issues, supported correction and evidence needed. (10 marks)

Two legal claims are treated identically Under explicitly supplied recognition criteria, claim 1 has a present obligation, probable outflow and reliable Rs 3 lakh estimate. Claim 2 is only a possible obligation with non-remote risk, estimated exposure Rs 5 lakh. Accounts recognise neither and disclose only a single "legal matters pending" line. No other criterion or settlement applies. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

December invoices conceal January delivery and a refundable deposit An enterprise's supplied revenue rule recognises goods sales only when specified delivery/title conditions occur; tax is excluded. It invoices Rs 8 lakh before year-end. Of that amount, Rs 5 lakh was delivered with title passed before year-end and Rs 3 lakh only after year-end. The latter goods costing Rs 180000 were wrongly removed from stock. Separately Rs 1 lakh received for a cancellable future service is refundable until performance, with no performance yet; it is booked as sales. There is no other cost, refund or receivable adjustment. Required: Identify the item-specific audit issues, supported correction and evidence needed. (10 marks)

Dispatch records are outside the sales sample The auditor checks every selected sales invoice to a matching dispatch record and finds no exceptions. However, a separate dispatch sequence shows 12 deliveries fulfilling the supplied revenue criterion with no invoice or revenue posting. Values are not yet reliably determined. Management says the clean invoice sample proves complete sales. Required: Identify the item-specific audit issues, supported correction and evidence needed. (3 marks)

A fixed deposit earns interest before cash arrives A non-financial enterprise holds Rs 10 lakh on fixed deposit for exactly six months at 8% annual simple interest. The supplied policy accrues interest by time. No cash interest has arrived and accounts record nil income; no default or other adjustment exists. Required: Identify the item-specific audit issues, supported correction and evidence needed. (3 marks)

A supplier payment is mistaken for current purchase A trader pays Rs 2 lakh to a supplier. Verified allocation is Rs 120000 settlement of last year's payable, Rs 50000 for goods delivered/owned this year and Rs 30000 refundable advance for next year's goods. Accounts expense the entire Rs 2 lakh as current purchases. The supplied facts exclude tax and other adjustments. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

Payroll master, unpaid bonus and an incomplete leave model Monthly payroll includes four leavers paid for three months after valid employment termination, at Rs 20000 each per month. Recovery is supported and the supplied policy treats these as employee receivables, not earned wages. Separately a Rs 150000 bonus has been earned under a verified scheme but is unpaid and unrecorded. A reliable leave-benefit model requires Rs 90000 year-end liability, while accounts show Rs 60000; no further payment or opening-balance issue applies. Management says payroll bank reconciliation proves correct employment expense. Required: Identify the item-specific audit issues, supported correction and evidence needed. (10 marks)

Ready for use precedes the first production run An enterprise applying AS10 has a machine costing Rs 6 lakh with Rs 60000 residualvalue andsix-yearstraight-line useful life. It is available for use from 1 January, although first production is 1 April. Year-end is 31 March. Exactthree-month depreciation is required; no impairment or other adjustment applies. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

An annual policy is charged in the month of payment Insurance premium Rs 120000 covers 1 October to 30 September. Year-end 31 March; exact six months belong to current year and six next year. The supplied accrual criterion treats the unexpired coverage as a prepayment. All Rs 120000 isexpense. No tax/refund applies. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)

Correct totals conceal security, aging and restricted balances A company's draft statements have arithmetically correct totals. Under explicitly supplied applicable disclosure criteria, secured borrowings must identify security and maturity, restricted deposits must be separated from available cash, receivables require correct aging, and contingent claims need nature/estimated-exposure disclosure. The draft calls a Rs 20 lakh secured loanunsecured, merges a Rs 3 lakh pledged deposit into available cash, ages a Rs 4 lakh eighteen-month debtor as 30 days and omits a non-remote possible claim exposure Rs 5 lakh. Recognition amounts are supplied as correct; no new provision or valuation conclusion is asked. Required: Identify the item-specific audit issues, supported correction and evidence needed. (5 marks)