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MC Question 7

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 audit assistant who has been assigned to help you with the audit work on non-current assets has expressed some uncertainty over why certain audit procedures are carried out and specifically is unsure what procedures relate to the valuation and allocation assertion.

Which of the following audit procedures are appropriate to test the VALUATION assertion for non-current assets?

(1) Ensure disposals are correctly accounted for and recalculate gain/loss on disposal
(2) Recalculate the depreciation charge for a sample of assets ensuring that it is being applied consistently and in accordance with IAS 16 Property, Plant and Equipment
(3) Review the repairs and maintenance expense accounts for evidence of items of a capital nature
(4) Review board minutes for evidence of disposals during the year and verify that these are appropriately reflected in the non-current assets register

A. 1 and 2
B. 1, 3 and 4
C. 2, 3 and 4
D. 2 and 3 only