Question
The statement of financial position extract of Agege Company Ltd from the trial balance and additional information on some of the account balances are presented
The statement of financial position extract of Agege Company Ltd from the trial balance and additional information on some of the account balances are presented below. You are the Audit manager, planning the audit of the 2019 financial statement.
Statement of financial position extract from the trial balance
GHcCash 100,000 Accounts receivables 360,000 Inventory 450,000 Property, plant and equipment 900,000 Other assets 50,000 Accounts payable 310,000 Long term debt 850,000 Owners' equity 700,000
Additional information
a. Receivables balances from customers range from GHc1,000 to GHc30,000. The 10 highest balances sum up to GHc240,000. The next 15 largest balances total GHc100,000. b. Inventory comprises of three product groups and the average cost of items in each group
ranges from GHc100 to GHc500. c. Property and equipment had two additions this year of GHc100,000 and GHc50,000. d. Accounts payable balances range from GHc5,000 to GHc30,000. e. Long-term debt is a single item from a venture capitalist, who has a lien on all assets
and the personal guarantee of the company owner. f. Your accounting firm's guidance on financial statement materiality indicates that GHc20,000 would be material to the company's financial statements taken as a whole. g. Agege Company is a small company and the financial statements are prepared by your accounting services department. you, however, perceive there are no material misstatements.
You are required to:
Explain how you would use the financial statement materiality amount to plan the nature and extent of direct tests of balances of the statement of financial position account in the 2019 trial balance.
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