Reference no: EM132537575

Question - CLASS ACTIVITY

Your firm is the auditor of ABBA Company, which produce and sells cooking oil and maize flour to the general public. You are involved in the audit of the company's non-current assets. The main categories of non-current assets are as follows:

i. Land and building (all of which are owned outright by the company, none of which are leased)

ii. Computers (on which an integrated stock control and sales system is operated)

iii. A number of large and small motor vehicles, mostly used for the delivery of stock to customers.

iv. Equipments for packaging and pricing products.

The depreciation rates used are used as follows:

i. Buildings 5% each year on cost.

ii. Computers and motor vehicles 20% each year on the reducing balance basis

iii. Equipments 15% each year on cost

You are concerned that these depreciation rates may be inappropriate.

Required -

a) Explain the main risks associated with financial statement assertions relating to fixed assets

b) List the sources of evidence available to you in verifying right (ownership) and cost of:

i. The land and buildings

ii. The computers

iii. Motor vehicles

c) List the procedures you would perform to check the appropriateness of the depreciation rates on each of the three categories of fixed asset.

d) Describe the action you would take if you disagreed with any of the depreciation rates used.