
a.
Identify the errors in the
a.

Explanation of Solution
Depreciation:
Depreciation is an expense due to regular use and consumption of capital assets. Depreciation is generally calculated by using Straight line or
Rectification of
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Accumulated depreciation-P4 | 150,000 | |||
| 150,000 | |||
(To rectify the opening balance of accumulated depreciation.) |
Table (1)
- Accumulated depreciation-P is a contra asset and it is decreased by $150,000. Therefore, accumulated depreciation-P account is debited with $150,000.
- Retained earnings are income and it is increased by $150,000. Therefore, retained earnings account is credited with $150,000.
Rectification of depreciation account for asset P:
Date | Account Title and Explanation | Post Ref. |
Debit ($) (Thousand) |
Credit ($) (Thousand) |
Accumulated depreciation-P2 | 75,000 | |||
Purchases | 7,500 | |||
Cost of goods sold | 67,500 | |||
(To rectify the depreciation expense of asset P for the year.) |
Table (2)
- Accumulated depreciation-P is a contra asset and it is decreased by $75,000. Therefore, Accumulated depreciation-P account is debited with $75,000.
- Purchases are expenses and it is decreased by $7,500. Therefore, Purchases account is credited with $7,500.
- Cost of goods sold is an expense and it is decreased by $67,500. Therefore, Cost of goods sold account is credited with $67,500.
Rectification of depreciation account for asset C-B:
Date | Account Title and Explanation | Post Ref. |
Debit ($) (Thousand) |
Credit ($) (Thousand) |
Accumulated depreciation-C-B6 | 194,000 | |||
General and administrative expense | 194,000 | |||
(To rectify the depreciation expense of asset C-B for the year.) |
Table (3)
- Accumulated depreciation-C-B is a contra asset and it is decreased by $194,000. Therefore, Accumulated depreciation-C-B account is debited with $194,000.
- General and administrative expense is an expense and it is decreased by $194,000. Therefore, General and administrative expense account is credited with $194,000.
Working Notes:
1. Computation of depreciation for the year for asset P:
2. Computation of rectification of depreciation for the year for asset P:
3. Computation of opening balance of accumulated depreciation for asset P:
4. Computation of rectification of opening balance of accumulated depreciation for asset P:
5. Computation of depreciation for the year for asset C-B:
6. Computation of rectification of depreciation for the year for asset C-B:
b.
Explain the two
b.

Explanation of Solution
Audit procedures that could be conducted for additions to PP&E are listed as follows:
- Verification of Documents: Invoice of the assets and the related installation expenses could be verified to check the accuracy of the particulars recorded along with asset’s classification and amount.
- Physical existence and Valuation: Asset’s physical existence could be verified along with the appropriateness of the value recorded. Value can be accessed on the basis of condition of the asset and brand.
c.
Compute the gain or loss from the sale of assets. Also, explain the amount of
c.

Explanation of Solution
Computation of gain or loss from sale of Assets:
Particulars | Amount ($) |
Loss on sale of Asset C-A1 | 542,000 |
Profit on sale of Asset A-1 2 | 1,000 |
Total loss | 541,000 |
Table (4)
Computation of cash flow from investing activities:
Particulars | Amount ($) |
Purchase of asset B-2 | 42,000,000 |
Add: Purchase of asset C-B | 3,500,000 |
Add: Purchase of asset A-2 | 22,000 |
Less: Sale proceeds of asset C-A | 500,000 |
Less: Sale proceeds of asset A-1 | 1,000 |
Cash flow from investing activities |
Table (5)
Working Notes:
1. Computation of gain or loss from sale of Asset C-A:
Particulars | Amount ($) |
Gain or loss from Asset C-A: | |
Book value of asset | 5,000,000 |
Less: Accumulated depreciation | 3,958,000 |
Remaining value (X) | 1,042,000 |
Sale proceeds (Y) | 500,000 |
Loss on sale of Asset C-A | 542,000 |
Table (6)
2. Computation of gain or loss from sale of Asset A-1:
Particulars | Amount ($) |
Gain or loss from Asset A-1: | |
Book value of asset | 15,000 |
Less: Accumulated depreciation | 15,000 |
Remaining value (P) | 0 |
Sale proceeds (Q) | 1,000 |
Profit on sale of Asset A-1 | 1,000 |
Table (7)
Want to see more full solutions like this?
Chapter 8 Solutions
Auditing & Assurance Services (Auditing and Assurance Services)
- Please provide the accurate answer to this general accounting problem using valid techniques.arrow_forwardCan you explain the process for solving this General accounting question accurately?arrow_forwardI am looking for the correct answer to this general accounting question with appropriate explanations.arrow_forward
- The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: Line Item Description September October November Sales $105,000 $128,000 $172,000 Manufacturing costs 44,000 55,000 62,000 Selling and administrative expenses 37,000 38,000 65,000 Capital expenditures 41,000 The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $8,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current…arrow_forwardCariman contracts delivery drivers to service customers. Cariman owns the vans and pays for the gas. With reference to the following independent situations for Cariman, determine where (a) responsibility and (b) controllability lie. Suggest what might be done to solve the problem or to improve the situation: 1. Gasoline costs for each van are budgeted based on the service area of the van and the amount of driving expected for the month. The driver of van 3 routinely has monthly gasoline costs exceeding the budget for van 3. After investigating, the service manager finds that the driver has been driving the van for personal use.2) Cariman’s delivery drivers are paid an hourly wage, with overtime pay if they exceed 40 hours per week, excluding driving time. Speedy Gonzales, one of the delivery drivers, frequently exceeds 40 hours per week. Customers are happy with Speedy’s work, but the delivery manager talks to him constantly about working more quickly. Speedy’s overtime causes the…arrow_forwardPlease provide the accurate answer to this general accounting problem using valid techniques.arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





