You are auditing the financial statements of USeeTech Limited (UL) for the year ended 30 June 2020.UL owns and operates a number of computer stores and has several product lines: software, computers and peripherals.Tests of controls have confirmed your original control assessment. Your audit programme now requires you to undertake substantive analytical review procedures on selected income statement items.Anything above $10,000 is regarded as material. Below is an extract from the income statement for the 2 years ended 30 June 2019 and 2020:

2020

($000)

2019

($000)

Sales

3,098

2,292

Cost of sales

1,864

1,452

Grost Profit

1,234

840

Expenses

Wages

648

560

Rent

230

230

Depreciation

46

40

Interest

33

35

Other expenses

167

125

Profit/(loss) before tax

110

(150)

Your enquiries establish the following further information:

i.Sales summary and analysis of sales across the three product classes:

Standard gross profit

2020

($000)

2019

($000)

Software

30%

660

492

Computers

30%

1,340

1,120

Peripherals

40%

1,098

680

3,0982,292

ii.During 2019 the company employed 5 staff. This fell to 4 on 1 January 2020 after one staff member resigned.On 1 July 2019, all staff members were given a 10% pay rise.

iii.As at 1 July 2019, the company had a $300,000 long term loan with Westpac with a fixed interest rate of 10%. A $40,000 lump sum repayment was made on 31 December 2019. On 1 October the company obtained second loan from Westpac for $50,000.This is a variable rate loan and the average interest rate over the remainder of the financial year was 13%. No repayments were made on the second loan during the year ended 30 June 2020.

REQUIRED:

Perform substantive analytical review procedures on thegross profit, wages, andinterestitems in the income statement for the year ending 30 June 2020 by comparing your expectation for each of these items with corresponding recorded amounts.Clearly state your conclusion abouteachof thethreeitems. Where relevant, indicate what further procedures and information would be required in order to conclude that each of the items is fairly stated.Show all workings and state any assumptions you have made.