WEEK 1: AUDITING PROBLEM

PROPERTY,PLANT & EQUIPMENT -- IMPAIRMENT The following trial balance relates to BENJ_SKUD, a public listed company, at 30 September 2011: PARTICULARS Revenue (note (i)) Cost of sales (note (i) Distribution costs Administration expenses Loan interest paid Ordinary shares of 25 cents each fully paid Share premium Retained earnings 1 October 2010 6% Redeemable loan note (issued in 2009) Land and buildings at cost ((land element P40 million) note (ii)) Plant and equipment at cost (note (iii)) Deferred development expenditure (note (iv)) Accumulated depreciation at 1 October 2010 buildings plant and equipment Accumulated amortisation of development expenditure at 1 October 2010 Income tax (note (v)) Deferred tax (note (v)) Trade receivables Inventories 30 September 2011 Cash and bank Trade payables P'000 114,000 17,000 18,000 1,500 40,000 12,000 34,000 50,000 100,000 66,000 40,000 16,000 26,000 8,000 1,000 15,000 24,000 21,300 11,000 413,800 15,000 413800 P'000 197,800

The following notes are relevant:

(i) Included in revenue is P12 million for receipts that the companys auditors have advised are commission sales. The costs of these sales, paid for by BENJ_SKUD, were P8 million. P3 million of the profit of P4 million was attributable to and remitted to Sharma (the auditors have advised that Sharma is the principal for these transactions). Both the P8 million cost of sales and the P3 million paid to Sharma have been included in cost of sales. (ii) The buildings had an estimated life of 30 years when they were acquired and are being

depreciated on the straight-line basis.

(iii) Included in the trial balance figures for plant and equipment is plant that had cost P16 million and had accumulated depreciation of P6 million. Following a review of the companys operations this plant was made available for sale during the year. Negotiations with a broker have concluded that a realistic selling price of this plant will be P75 million and the broker will charge a commission of 8% of the selling price. The plant had not been sold by the year end. Plant is depreciated at 20% per annum using the reducing balance method. Depreciation of buildings and plant is charged to cost of sales. (iv) The development expenditure relates to the capitalized cost of developing a product called the Topaz. It had an original estimated life of five years. Production and sales of the Topaz started in October 2009. A review of the sales of the Topaz in late September 2011, showed them to be below forecast and an impairment test concluded that the fair value of the development costs at 30 September 2011 was only P18 million and the expected period of future sales (from this date) was only a further two years. (v) The balance on the income tax account in the trial balance is the under-provision in respect of the income tax liability for the year ended 30 September 2010. The directors have estimated the provision for income tax for the year ended 30 September 2011 to be P4 million and the required balance sheet provision for deferred tax at 30 September 2011 is P176 million.
A. In BENJ_SKUD's Income statement for the year ended 30 September 2011 how much should be reported as: 1. a. b. c. d. 2. a. b. c. d. 3. a. b. c. Revenue (in P'000)? P197,800 P185,800 P198,800 P195,800 Cost of sales (in P'000)? P128,100 P136,100 P133,100 P120,100 Profit for the period (in P'000)? P20,700 P12,100 P13,100

d. P16,100

B. In BENJ_SKUD 's Balance Sheet as of 30 September 2011 how much should be reported as total: 1. Property, plant and equipment (net of accumulated depreciation) (in P'000)? a. P114,000 b. P106,000 c. P124,000 d. P144,000 2. a. b. c. d. 3. a. b. c. d. 4. a. b. c. d. Non-current Assets (in P'000)? P190,000 P144,000 P124,000 P114,000 Held-for sale plant assets under PFRS 5 (in P'000)? P6,900 P10,000 P7,500 P16,000 Current assets (in P'000)? P63,200 P66,300 P63,800 P72,300

C. How much is the total cost of impairment loss attributable to 1. a. b. c. d. 2. a. b. c. Plant held for sale (in P'000)? P9,100 P3,100 P8,000 P6,000 Impairment of development expenditure (in P'000)? P9,100 P3,100 P8,000

d. P6,000

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