question 2

Q2. Substantive Tests You are conducting the first-time audit of the accounts of Billie Bugs Pty Ltd, a small seafood distribution firm in the eastern suburbs of Melbourne. To get the business up and running, one of the owners contributed cash and other private assets to the business, with the following general journal bringing them to initial account in the books: Dr/Cr Account Debit Credit DR Cash 7,500 DR Machinery 25,000 OR Computer 1,250 DR Motor Vehicle 50,000 CR Capital 83,750 (Contribution by owner) Required: In relation to the above journal entry, explain substantive tests that would enable you to substantiate each of the following: a. The valuation and allocation of the machinery; b. The existence of the computer; c. The rights and obligations of the motor vehicle. [3 x 2 = 6 Marks]