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MC Question 10

Balotelli Beach Hotel Co (Balotelli) operates a number of hotels providing accommodation, leisure facilities and restaurants.

You are an audit senior of Mario & Co and are currently conducting the audit of Balotelli for the year ended 31 December 20X4. During the course of the audit a number of events and issues have been brought to your attention:

Non-current assets and depreciation
Balotelli incurred significant capital expenditure during the year updating the leisure facilities at several of the company’s hotels. Depreciation is charged monthly on all assets on a straight line basis (SL) and it is company policy to charge a full month’s depreciation in the month of acquisition and none in the month of disposal.

The results of the trade receivables circularisation carried out by the audit team on balances as at 31 December 20X4 are detailed below. You have been asked to consider the results and determine if additional audit procedures are required.

Customer Balance per sales ledger Balance per customer confirmation Comment
$ $
Willow Co 42,500 42,500
Cedar Co 35,000 25,000 Invoice raised 28 December
Maple Co 60,000 45,000 Payment made 30 December
Laurel Co 55,000 55,000 A balance of $20,000 is currently being disputed by Laurel Co
Oak Co 15,000 No reply

Which of the following statements in relation to the results of the trade receivables circularisation is TRUE?

A No further audit procedures need to be carried out in relation to the outstanding balances with Willow Co and Laurel Co
B The difference in relation to Cedar Co represents a timing difference and should be agreed to a pre year-end invoice
C The difference in relation to Maple Co represents a timing difference and should be agreed to pre year-end bank statements
D Due to the non-reply, the balance with Oak Co cannot be verified and a different customer balance should be selected and circularised