During the course of the audit of non-current assets of Eastern Engineering Ltd at 31 March 20X4, two problems have arisen.

(1) Assets are constructed by the company. The cost of direct labour associated with the assets under construction during the year was £10,000. The calculations supporting this cost has been accidently destroyed.

(2) The company incurred development expenditure of £25,000. This was in relation to a viable new product which will go into production next year and is expected to last for ten years. The cost has been expensed in full to profit and loss.

Note: Profit before tax £100,000

Non-current asset additions (exc constructed assets) £133,000

Assets constructed by the company £34,000

Carrying amount of non-current assets £666,667

 

Required.

State whether you feel that a modified audit opinion would be necessary for each of the two circumstances outlined giving reasons in each case.

Answer rating: 100% (QA)

1 Assets constructed by the company Since the calculations supporting the cost of direct labor associated with the assets under construction have been ... View the full answer