The process of auditing the accounts of Settle Enterprise, a government owned college, which specializes in engineering courses. Head of Faculty of Engineering has written asking for some clarification of items in the most available published accounts. His letter included the following questions, all of which relate to the statement of financial position in the accounts to the 31 Dec 20X0

1

a. They noticed the machinery figure under non-current assets was P20 000 last year but  know they had 10 pieces of machinery and each cost P7 000 according to my 20X0 catalogue. Why is the figure in the statement so low? 

b.  The retained surplus figure is P 100 000 but they only have P20 000 in the bank. Does that mean they spent nearly all the surplus? 

c. The intangible /patent figure has gone down from P50 000 to P45 000. They assume this relates to the  patents for the new designs the colleagues patented last year. They don't understand why this would go down in value as they still have full rights to these patents 

REQUIRED 

Compose a response to these questions the Head of Mechanical engineering in a suitable method. 

1b. 

i) The balance in the Receivables account was P25 000on 1 January. During the year income of P 175 000 was generated of which P 40 000 was paid immediately in cash. A further P125 000 was received from receivables and P2 000 was identified as being bad debt as the company owing the money has ceased trading. 

ii) the balance on the vehicle account on 1 January was P 85 000 and accumulated depreciation on vehicles was P 40 000. During the year a new vehicle was purchased for P12 000 and another was sold which had cost of P8 000 and had been depriciated by P5 000. The depreciation charges in the statement of financial performance was P11 000. Public sector financial reporting 

iii) a surplus of P78 000 had been reported in statements of financial performance and it has been agreed that 50% of this should be transferred to the buildings repair reserve. Opening balances were P140 000 on the buildings repair reserves and P<16 000> on the accumulated surplus (deficit) account. During the year P37 000 was spent on replacing central heating systems and this is to be charged to the buildings repair reserves 

iv) a long term loan was arranged on 1 January for P15 000. During the year payments were made of P1 500 half of which were of interest charges. 

REQUIRED 

1) How would these items appear in the statements of financial positions?Suggest which category the items should appear in and what amount should be at the end of the financial year?

Answer rating: 100% (QA)

Composing a response to these questions the Head of Mechanical Engineering in a suitable method Subject Clarification on Settle Enterprises 20X0 Financial Statements Dear Head of Mechanical Engineerin... View the full answer