Question 1

When testing a client's additions to an asset for research and development, the auditor does not test the capitalisation of all new natural resources.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following assertions is not addressed by examining purchase agreements and minutes of board of directors meeting?

Accepted Answer

A)   existence
B)   rights
C)   valuation
D)   completeness D

Question 3

Capital leases
Identify the five criteria that have been provided under AASB 117 that the auditor will use to assess capital lease treatment.

Accepted Answer

Current accounting principles in Australia (AASB 117 Leases) require that leases be capitalised as finance leases if they meet at least one of five conditions:
1 The lease transfers ownership of the asset to the lessee by the end of the lease term.
2 The lessee has the option to purchase the asset at a price that is expected to be sufficientlylower than the fair value at the date the option becomes exercisable for it to be reasonablycertain, at the inception of the lease, that the option will be exercised.
3 The lease term is for the major part of the economic life of the asset even if title is nottransferred.
4 At the inception of the lease the present value of the minimum lease payments amounts to atleast substantially all of the fair value of the leased asset.
5 The leased assets are of such a specialised nature that only the lessee can use them without major modifications.
Capitalised leases are initially recorded at the present value of the future minimum leasepayments. The cost of the asset is amortised in the same way as that of purchased assets. Periodiclease payments include interest expense and reduction of principal. If the lease does not meet oneof the preceding tests, it is accounted for as an operating lease, in which case only rent expense isrecorded with the future obligations disclosed as a note.

Question 4

AASB 117 requires that lease agreements are treated as capital leases if specific criteria apply.

Accepted Answer

A) True 
 B)False

Question 5

Auditors will perform an analysis of leases using AASB 117 criteria to substantiate the accounting treatment.

Accepted Answer

A) True 
 B)False

Question 6

Property plant & equipment evidence - Additions
Specify the evidence the auditor would review to satisfy himself or herself about each of the following assertions concerning property, plant, and equipment additions.
A. Valuation at historical cost
B. Existence
C. Presentation on balance sheet
D. Rights

Accepted Answer

The answer of Property plant & equipment evidence - Additions
Specify...

Exam 13: Audit of Long-Lived Assets and Related Expense Accounts

When testing a client's additions to an asset for research and development, the auditor does not test the capitalisation of all new natural resources.

Which of the following assertions is not addressed by examining purchase agreements and minutes of board of directors meeting?

Capital leases Identify the five criteria that have been provided under AASB 117 that the auditor will use to assess capital lease treatment.

AASB 117 requires that lease agreements are treated as capital leases if specific criteria apply.

Auditors will perform an analysis of leases using AASB 117 criteria to substantiate the accounting treatment.