Accumulated Depreciation 2015 Beginning of financial year 60,000 300,000 364,000 724,000 Depreciation Charge 11,000 88,000 52,000 151,000 Disposals (50,000) (60,000) (160,000) (270,000) End of financial year 21,000 328,000 256,000 605,000 Net Book Value 2015 End of financial year 89,000 112,000 319,000 520,000 Depreciation rates stated in the financial statements are all based on cost and calculated using the straight line basis. The rates are: 1.Leasehold improvements 10% 2.Office equipment 20% 3.Motor vehicles 10% Disposals in the motor vehicles category relates to vehicles, which were five years old.
Page 13 of 30 The audit team receives the following schedule prepared by the junior on the list of cost items that make up the cost for additional items of $390,000 that has been added to non-current asset. The current year’s depreciation of the addition has already been charged and included in non-current asset note above. Schedule of additions to property, plant and equipment Cost items Amount $ 1. Office equipment from Total Supplies Malaysia 75,000 2. Freight cost for shipment of office equipment 10,000 3. Motor vehicles supplied by Fast Motors Pte Ltd 4. Repair to office equipment not covered by warranty 213,000 40,000 5. Installation of office partitions and new flooring 50,000 6. Commission to CEO for successful negotiation of price discount with Fast Motors Pte Ltd 2,000 390,000 Required: You have just completed your analytical procedures of the non-current assets note. (i) Identify and explain any issues with the non-current asset note to raise with management. (ii) Explain how each issue can be resolved. Question 5 Adapted from ISCA PE Assurance exam In January 20x5, two small-sized laser marking machines were relocated to a customer’s factory in China as part of the Company’s initiative to improve production efficiency and savings by reducing lead time and production costs. Both laser marking machines have a total net book value of $200,000 as at 31 December 20x5. In February 20x5, the Company purchased a customised cast costing $350,000 to be used in one of their production lines for a special order for a major customer, Bing Ltd. Just before the commencement of production in March 20x5, Bing Ltd changed the product design to incorporate additional features so a new cast had to be commissioned as the customised cast could not be modified to comply with the new specifications. Bing Ltd disagreed to compensate for the unused cast. As the original customised cast was of no further production use, the Company made two failed attempts to sell the cast at $70,000 and $60,000 in March 20x5 and September 20x5. The Company has accelerated the depreciation of cast over two years and recorded a net book value of $175,000 as at 31 December 20x5. As at 29 February 20x6, the Company was in an advanced stage of negotiation to sell the cast to an interested buyer at $50,000. The cost incurred by the Company to sell the cast was minimal.
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