Q1. You have been engaged to audit the financial statements of a listed entity Gin Ltd. The net profit after tax for the year was $80,000. 150,000 $1 ordinary shares were issued during the year. A share buy-back scheme was also offered during the year. A gain on sale of plant of $10,000 was reported on the income statement. New plant was purchased during the year. Bad debt expense of $15,000 was reported on the income statement. Below is a draft of the balance sheet to be included in the financial statements.

Gin Ltd

Balance Sheet

As at 30 June 2020

2020

$

2019

$

Current assets

Cash

116,000

120,000

Accounts receivable

355,000

245,000

Allowance for bad debts

(10,000)

(10,000)

Inventory

68,000

165,000

Total current assets

529,000

520,000

Non-current assets

Land

160,000

160,000

Plant and equipment (net)

269,000

260,000

Total Non-current assets

429,000

420,000

Total assets

958,000

940,000

Current liabilities

Accounts payable

56,000

128,000

Warranty provision

114,000

238,000

Tax payable

330,000

124,000

Total current liabilities

500,000

490,000

Non-current liabilities

Loan

150,000

260,000

Total Non-current liabilities

150,000

260,000

Total liabilities

650,000

750,000

Equity

Share capital

130,000

30,000

Retained profits

158,000

140,000

Other reserves

20,000

20,000

Total equity

308,000

190,000

Total liabilities and equity

958,000

940,000

With reference to the balance sheet and other information provided:

a)list two (2) examples of audit tests that the auditor could complete in relation to each of the following

b)from the two different audit tests provided explain which audit assertions these tests are covering

c)explain which of the two audit assertions ismost importantin relation to the account being audited.

• accounts payable
• share capital
• warranty provision