Analysis of Cost Less Depreciation of Fixed Assets
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This article provides an analysis of the cost less depreciation of fixed assets in the field of auditing and assurance. It discusses accounting errors and misrepresentations related to depreciation, inventory, accounts receivables, and accounts payable.
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Running head:AUDITING & ASSURANCE Auditing & Assurance Name of the student: Name of the University: Author’s name:
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1 AUDITING & ASSURANCE Table of Contents Analysis of cost less depreciation of fixed assets......................................................................2 Analysis of inventory.................................................................................................................3 Accounts receivables analysis....................................................................................................3 Analysis on accounts payable....................................................................................................5 References..................................................................................................................................6
2 AUDITING & ASSURANCE Analysis of cost less depreciation of fixed assets ParticularDebitCredit Depreciation expenses A/c346519 To assets A/c346519 (Bing the depreciation charged on Assets) P/L A/c Dr.346519 To depreciation A/c346519 (Beingthedepreciationistransferredtoprofitandloss account) For the adjustment of depreciation the accumulated depreciation has been calculated at $346519 instead of $375970. This has been recognised that the cost less value of maintenance and repair equipment is overvalued. Along with that 47 kits ware to be included while calculating the depreciation instead of 50 kits. This has not accounted the impairment of assets which resulted in increase in cost less assets values. As per the International accounting standard 16 refers the deprecation on the property plant and equipment has been calculated based on their use full life time (Ifrs.org, 2019). As the case study reflects that the machinery still has a life time of more 10 years, which means this generates a total life time of 12 year. Along with that the cost less depreciation has shown an overvalued at $375970 but this need to be shown a value at $346519 as the assets value with 47 kits represents a value at $1039557.09. As per the accounting standard 16 the straight line method has been followed to depreciate the maintenance and repair equipment. However the case study includes impairment and the 3 equipments have not been located and the depreciation has been calculated on the assets value which includes only 47 kits. For this the assets value came down and the depreciation came to $346519. Therefore the cost less assets can produce an exact amount through the representation of exact depreciation into the account. Hence this has been recognised that the maintenance and repair accounts are having their assets value at
3 AUDITING & ASSURANCE $346519 which has been mistakenly shown at $375970 (Ackermann, Fochmann & Wolf,, 2016). Analysis of inventory ParticularDebitCredit Widgets inventory write off expanses A/C118931 To Inventory A/C118931 (Being single wedge inventory written off due to become out of date) The inventory management has been done through setting the exact requirement of that inventory otherwise the cost of that inventory increases the portion of loss. The inventory has been over valued by $118931. As this remains the value of one widget which has lost its usefulness this has become out of dated for the company and the value should not have included into the total inventory amount. However the price is still included into the value of total inventory at $949973. This has been recognised that instead of losing its usability the inventory has been kept into the account for which the value of inventory has increased. This needs to be written off from the total value of widgets inventory. As per the international accountingstandard2thisprovidesanideaontheinventorymanagementandthe determining the cost of inventory. With refer to the IAS 2 this has been recognised that the inventory has taken a total value, which includes 3 widgets of inventory. However, with the expiry of one widget the value of total widget needs to be write off from the total value and remains with the actual cost of inventory into the company’s hand (Wild, 2017). Accounts receivables analysis ParticularDebitCredit Bad debt expenses A/C117374 To accounts receivable A/C117374 (Being bad debt realised on full money) Bank A/c Dr.332451
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4 AUDITING & ASSURANCE Receivables control A/C332451 (Being the unapplied cash receipt has been realised) Provision for bad debt A/C Dr.250000 To Accounts receivable A/C250000 (Being the provision for bad debt is written off) The accounts receivables have shown a value at $9607664 which is yet to be collected from the creditors. With the mis-postings of the invoice and the weak accounts receivable management the amount has not been recovered and the balance has been misstated into the books of accounts. This has been recognised that although Brian has shown confidence into collection of the receivable amount, they could not recover the money. For the purpose Brian plans to adjust the amount with the bankrupt limited’s owing amount. As The Company collapses, the money could not be recovered by the Brian. What so ever, Brian did not pass the bad debt entry for not recovering the receivable amount. On the other hand the Bankrupt PVT. only owed $117374 but the total accounts of receivable was more than that. Therefore, depending on this amount the accounts receivable could not have been cleared.Along with that the unpaid cash receipt has been overvalued to $926842. This resulted in wrong representation of the net accounts receivable value. However with the amount of net receivable of $594391 this reflects a difference in actual net income. This has created a difference in actual net receivable into the category of 365 days and the entry provision for bad debt has also not been passed by the accountant. Further, a wrong representation of provision for bad debt has been done through passing a provision bad debt entry and charging the provision amounting $250000. These needs to be written as there were no provision has been made for bad debt as the bad debt has not been charged on the loss on accounts receivable. To write of this entry an inverse journal entry of provision for bad debt is
5 AUDITING & ASSURANCE required. Along with that the profit and loss statement needs to be rectified (Ngugi, Gakure & Gekara, 2017). Analysis on accounts payable ParticularDebitCredit Provision for bad debt A/C Dr.250000 To Accounts receivable A/C250000 (Being the provision for bad debt is written off) The advertise campaign has shown a cost of $125000 for the month of June. However the cost which has been charged for the advertisement purpose is the amount or the cost for one month. The advertisement campaign has been set for 4 months which is from June till October. However, the money has been charged for one month which needs to be charged for 4monthsequally.Thisshouldhaverepresentedavalueat$250000butwiththe representation of only $125000 the expenditure amount is undervalued. With the decrease in monthly expenses that get generated from advertising campaign the net profit has been overvalued. Therefore the advertisement expenses need to be charged through multiplying the expenses at 4 times. At the end of the June 2007 the advertise expenses has been charged and recorded as the full payment. However, the full payment expenses have not yet been done (Pais & Gama, 2015).
6 AUDITING & ASSURANCE References Ackermann, H., Fochmann, M., & Wolf, N. (2016). The Effect of Straight-Line and Accelerated Depreciation Rules on Risky Investment Decisions—An Experimental Study.International Journal of Financial Studies,4(4), 19. Ifrs.org.(2019).IFRS.Retrievedfromhttps://www.ifrs.org/issued-standards/list-of- standards/ias-16-property-plant-and-equipment/ Ngugi, S. K., Gakure, R. W., & Gekara, G. M. (2017). Influence of policies on accounts receivablesmanagementinthehotelindustryinKenya.AmericanJournalof Accounting,1(1), 93-115. Pais, M. A., & Gama, P. M. (2015). Working capital management and SMEs profitability: Portuguese evidence.International Journal of Managerial Finance,11(3), 341-358. Wild, T. (2017).Best practice in inventory management. Abingdon: Routledge.