NSC Accounting Comments on an audit report: 3.1 GAAP CONCEPTS
Match the GAAP

Question

3.1 GAAP CONCEPTS
Match the GAAP concepts listed in COLUMN A with an explanation provided in COLUMN B. Write the letter (A–E) next to each number (3.1.1–3.1.4) in the ANSWER BOOK.

3.1.1 Matching
3.1.2 Historical cost
3.1.3 Materiality
3.1.4 Business entity

3.2 AUDIT REPORT
Below, is an extract of the audit report of Gunuz Ltd.
REQUIRED:

3.2.1 Explain the role of the independent auditor.

3.2.2 Did Gunuz Ltd receive a qualified, unqualified or a disclaimer audit report? Explain your choice.

3.2.3 The marketing expenses shown on the Income Statement refers to a goif supplementary expenditure by the CEO and the directors’ fees. This expenditure was not previously authorized by the company. The internal auditor was not willing to disclose it.

Provide TWO consequences for the auditor if she agreed to this request.

INFORMATION
FROM THE REPORT OF THE INDEPENDENT AUDITORS
We have audited the annual financial statements of Gunuz Limited, set out on pages 22 to 43 for the year ended 30 June 2015. These financial statements are the responsibility of the company’s directors. Our responsibility is to express an opinion on these financial statements based on our audit.

Audit opinion
In our opinion, the financial statements fairly present the financial position of the company at 30 June 2015, except for the marketing expense in the Income Statement which could not be verified, as no documentation existed for this expenditure.

Mihali and Van Rooyen
Chartered Accountants (SA)
15 August 2015

3.3 BHEEM LTD
The information relates to Bheem Ltd for the financial year ended 29 February 2016.
REQUIRED:
Prepare the Income Statement for the year ended 29 February 2016.

A. Information extracted from the pre-adjustment trial balance:
- Trading stock, 132 650
- Debtors control, 68 800
- Provision for bad debts
- Sales, 5 207 600
- Cost of sales, 4 156 650
- Debtors allowances, 9 800
- Salaries and wages, 432 900
- Rent income, 78 600
- Consumable stores, 76 600
- Interest on investment, 43 150
- Insurance, 43 150
- Commission income, 25 500
- Directors’ fees, 329 200
- Audit fees, 16 160
- Sundry expenses, 72 800

B. Adjustments and additional information:
(a) A credit note for R2 800 (cost R1 750), issued to a debtor for goods returned was not recorded. The goods were placed back on the shelves.
(b) The stock take on 29 February 2016 revealed the following stock on hand:
- Trading stock, R131 400
- Consumable stores, R4 100
(c) The provision for bad debts must be adjusted to 4% of debtors.
(d) The rent for March 2016 was received. Take into account that rent was increased by R500 on 1 July 2015.
(e) The directors’ fee of one director was outstanding for February 2016. The company has 3 directors on the same fee structure.
(f) The amounts are due a further R3 840 due to the audit taking longer than expected.
(g) Depreciation on equipment of R32 700 must be provided.
(h) Interest on loan is capitalised. The loan statement showed that R24 500 was added to the loan account as interest.
(i) Income tax is calculated at 30% of the net profit.

3.1 GAAP CONCEPTS Match the GAAP concepts listed in COLUMN A with an explanation provided in COLUMN B - NSC Accounting - Question 3 - 2016 - Paper 1

Worked Solution & Example Answer:3.1 GAAP CONCEPTS Match the GAAP concepts listed in COLUMN A with an explanation provided in COLUMN B - NSC Accounting - Question 3 - 2016 - Paper 1

Explain the role of the independent auditor.

Did Gunuz Ltd receive a qualified, unqualified or a disclaimer audit report? Explain your choice.

Provide TWO consequences for the auditor if she agreed to this request.

Prepare the Income Statement for the year ended 29 February 2016.

Income Statement for Bheem Ltd

For the year ended 29 February 2016

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