Question

Explain applicable techniques of auditing in case of any five fixed tanghible assets in details with sutable examples.

Answer 1

GENERAL PRINCIPLES OF VERIFICATION OF ASSETS:

1. Title deeds and other documents:

a) Examine the title deeds and Register of Fixed assets to see whether the client holds the title on the balance sheet date.

b)

If the asset is mortgaged, the title deed would be in the possession of the mortgagee or his solicitors. A certificate to this effect should be obtained from them.

c) Physical inspection should be done at some periodical intervals. Sometimes physical inspection is not possible, e.g goods lying with consignee. The certificating of such parties should be obtained.

2. Original cost and valuation:

a) The cost of fixed assets including any additions should be verified with the invoice of supplier together with evidence in respect of other incidental expenses chargeable to the account, including installation expenses.

b) In case if self constructed assets or additions, veity the basis on which the expenditure has been allocated should be verified and ago a certificate is obtained from the engineer responsible for the manufacture the plant confirming the total cost of manufacture

c) See that the fixed assets have been Valued at cost less depreciation. If any revaluation has taken place, see the basis same has been made. evaluation and ensure that the disclosure of the

3. Depreciation:

The asset has been revalued, depreciation should be provided on the revised value and not on the historical value.

4. Repairs and renewals: Ensure repair expenditure which increases the earning capacity of the asset should be capitalised to the asset and current repairs should be taken statement of profit and loss.

5. Sale of assets: When an asset is sold, its sale-proceeds should be vouched by reference counterfoil of the receipt issued to the purchaser Capital profits should be transferred to capital reserve. However, the profit limited to the original cost or a loss should be transferred to the Statement of Profit and Loss.