You are a manager responsible for the audit of Kapapreko Company Ltd. The draft consolidated financial statement for the year ended 31 March 2002 show revenue of USD84.4million(2001 was USD43.6million),profit before tax of USD3.6 million (2001 was USD4.4 million) and total assets of USD61.4 million (2001 was USD46.8 million). In March 2002, the management board announced plans to cease offering home delivery services from the end of the month. These sales amounted to USD1.2 million for the year to 31 March 2002 (2001 was USD1.6 million). A provision of USD0.4 million has been made at 31 March 2002 for the compensation of redundant employees (mainly drivers). As an auditor, your criteria for assessing materiality is based on the following:

VALUE: PERCENTAGES%

profit before tax 5

gross profit 0.5-1

revenue 0.5-1

total assets 1-2

net assets 2-5

profit after tax 5-10

Require:

compute and comment on the materiality of the two issues raised as regards

1. home delivery sales
2. provisions