Pineapple Beach Hotel Co. (Pineapple) operates a hotel providing accommodation, leisure facilities, and restaurants. Its year end was April 30, 2020. You are the audit senior of Berry & Co. and are currently preparing the audit program for the year-end audit of Pineapple. You are reviewing the notes of last week’s meeting between the audit manager and controller where the following material issue was discussed.

Pineapple incurred significant capital expenditure during the year updating the leisure facilities for the hotel. The controller has proposed that the new leisure equipment be depreciated over 10 years using the straight-line method.

Which of the following procedures will provide sufficient appropriate audit evidence regarding the depreciation for the new items?

a). Compare depreciation rates applied to the new leisure facilities with industry averages.

b). Scan repairs and maintenance expenses for items that should have been capitalized.

c). Review if the capital expenditure budgets include plans to replace any of the new leisure equipment, which would indicate that its useful life is less than 10 years.

d). Consider the depreciation policies on assets disposed of in the year and any related gains or losses.

e). Tour the hotel and note any equipment not in use.

f). Recalculate the depreciation expense on a sample of leisure equipment to ensure the correctness of the fixed asset schedule.

g). Read lease agreements and ensure adequate disclosure.

Answer rating: 100% (QA)

ANSWER d Consider the depreciation policies on assets disposed of in the year and any related gains ... View the full answer