You are carrying out the audit of AYZ limited and during your review of invoices received from the supplier subsequent to the year end $($in $2015)$ you had noted that there is an invoice of AED$2.100,0000$ which has been received by AYZ limited and the period pertains to the fiscal year being audited $($i$.$e $31$ December $2014)$ which of the following actions you will take?

a$.$ Discuss with the management and assess as to whether there was a present obligation as at year end and the service were received and only the physical receipt of invoice happened subsequent to the year end.

b$.$ Ask the management to record a liability in $2015$ and nothing else.

c$.$ None of the above.

SECTION I $-$ B True or False

Increase in closing stock states that there is an increase in cost of sales. $T$

The formula for computing cost of sales is opening stock $+$ purchases $-$ sales.

Sales returned are credited to sales return account with corresponding debit to trade receivable. $T$

Is depreciation expenses non$-$cash item while preparing statement of cash flow. $T$

There is a sales made on $31$ December $2014$ and the revenue has been recorded in the books. Subsequent to the year end in $2015$ we identified that the goods were returned by the customer. Is it ok if we don't reverse the revenue and the cost recorded on $31$ December $2014?$ F

In statement of cash flow inventory, trade receivables, trade payables and capital are part of working capital $($i$.$e$.$ operating activities$).$ T

While preparing bank reconciliation statement, adjustment related to bank charges debited by the bank is a timing difference and not adjusting difference. $F$

The accrual method of accounting records income in the period earned and expenses in the period incurred.

Assets account normally have a credit balance.

Under accrual basis of accounting revenue is recorded in the accounting period when the cash is received.

Unearned revenue $($deferred revenue$)$ is presented as a liability in the statement of financial position.

The Company has a liability of AED. $100$ as of $31$ December $2012.$ The Company has already given PDC $($post$-$dated cheque$)$ dated $15$ January $2013$ to the vendor and the management has already reversed the liability in the financial statements as at $31$ December $2012,$ is this treatment correct? $T$

A business whose assets are greater than its owner's equity has a bad financial position.

We are allowed to use LIFO $($Last in$-$first out$)$ method for valuing our inventories in accordance with International Accounting Standards $2-$ Inventories. $T$

The most reliable form of documentary evidence generally is considered to be documents created by clients.

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