The Case: Britney's Company audit of Property, Plant, and Equipment

Britney's Company has prepared the fixed assets and depreciation as shown in Exhlbit $1.$ The following information is available:

The land was purchased eight years ago when Building $1$ was erected. The location was then remote, but it is now bordered by a major freeway. The appraised value is $$35$ million.

Building $1$ has an estimated useful life of $35$ years and no residual value.

Building $2$ was built by a local contractor this year. It also has an estimated useful life of $35$ years with no residual value. The company occupied it on May $1$ this year.

Equipment A was purchased January $1$ six years ago, when the estimated useful life was eight years with no residual value. It was sold on May $1$ for $$500,000.$

The computer system was placed in operation as soon as Equipment A was sold. It is estimated to be in use for six years with no residual value at the end.

The company estimated the useful life of the press at $20$ years with no residual value.

Truck $1$ was sold during the year for $$1,000.$

Truck $2$ was purchased on July $1.$ The company expects to use it for five years and then sell it for $$2,000.$

All amortization is calculated by the straight$-$line method using months of service.

Required:

a$.$ Audit the depreciation calculations. Are there any errors? Put the errors in the form of an adjusting journal entry, assuming $90\%$ of the depreciation on the buildings and the press has been charged to cost of goods sold and $10\%$ is still capitalized in inventory, and the other depreciation expense is classified as general and administrative expense. You must create a working paper similar to the one in exhibit $12-10$ and properly document your work.

b$.$ List two substantive audit procedures for auditing the fixed asset additions and the assertions the procedure is testing.

c$.$ For one addition and one disposition create a fictitious supporting document. One of them must have the correct amount and the other one must include a discrepancy. Then perform an audit procedure and document your findings and conclusions on the same working paper prepared in$.$ part A$.$

d$.$ What will an auditor expect to find in the Gain and Loss on Sale of Assets account?

Exhibit $1-$ PPE Continulty Schedule

$\backslash$table$[[$Property$,$ Plant, and Equipment Assets and Depreciation$],[$Description$,$Asset Costs $(000$s$),$Accumulated depreciation $(000$s$)],[\backslash$table$[[$Beginning$],[$Balance$]],$Added,Sold,$\backslash$table$[[$Ending$],[$Balance$]],\backslash$table$[[$Beginning$],[$Balance$]],$Added,Sold,$\backslash$table$[[$Ending$],[$Balance$]]],[$Land$,10,000,,,10,000,,,,],[$Building $1,30,000,,$S$,30,000,6,857,857,,7,714],[$Building $2,,42,000,,42,000,,800,,800],[$Equipment$,5,000,,5,000,0,3,750,208,3,958,0],[\backslash$table$[[$Computer$],[$system$]],,3,500,,3,500,,583,,583],[$Press$,1,500,,,1,500,300,150,,450],[$Truck $1,15,,15,0,15,,15,0],[$Truck $2,,22,,22,,2,,2],[$Total$,46,515,45,522,5,015,87,022,10,922,2,600,3,973,9,549]]$

Evaluation Rubric

$\backslash$table$[[$Component$,$Marks$],[$a$.$ Audit of depreciation calculation $($Show your work$).$ Document.,$11],[\backslash$table$[[$b$.$ Two procedures including assertions being tested for each of the$],[$following:$],[$a$.$ Building $2],[$b$.$ Computer system$],[$c$.$ Truck $2]],9],[\backslash$table$[[$c$.$ Creation of two fictitious documents with appropriate referencing, a$],[$clear understanding of the procedure performed and its purpose$],[($which assertion being tested$)$ and a documented conclusion on$],[$findings$.]],10],[$d$.$ Discussion on Gain$/$loss of sale account,$5],[$Total$,35]]$