You are the manager in charge of Ringnotes Ltd.'s audit. The primary business of the company is the wholesale of frozen fish. The draft consolidated financial statements for the year ended March 31, 20x2, indicate total assets of P48.0 million, sales of P67.0 million (20X1 - P62.3 million), and profit before tax of P11.9 million (20X1 - P14.2 million) (20X1 P36.4 million).

The following issues arising during the final audit have been noted on a schedule of points for your attention.

(a) An early 20x2 chemical spill from Lamont-owned refrigeration equipment contaminated portions of the company's property. Lamont has spent P30,000 in regulatory agency fines, P0.6 million modernizing the units to stop future leaks, and P0.3 million on clean-up expenses. These costs have been capitalized as improvements, except for the fine, which has been expensed. (20 marks)

(b) Tradeworld Warehousing Services handled all of Lamont's cold storage needs while the refrigeration equipment underwent modernization. Tradeworld possessed Lamont's inventory at that time, but because to health and safety regulations limiting unauthorized access to cold storage locations, it was not possible to physically inspect it as of March 31, 20x2. The management of Lamont has confirmed in writing that P10.1 million worth of goods was maintained as of March 31, 20x2 (20x1 P6.7 million). The costing of Tradeworld's monthly return of quantities held as of 31 March 20x2 has been agreed upon at this sum. (20 marks)

(c) Over its corporate headquarters, Lamont has a home. It was rented for P3,000 per month up until December 31, 20x1. The senior sales executive has been residing there rent-free since January 1, 20x2. (15 marks)

Required In undertaking your review of the audit working papers and financial statements of Ringnotes Ltd for the year ended 31 March 20x2, for each of the above issues:

1. Comment on the matters that you should consider; and
2. State the audit evidence that you should expect to find.

Note. The mark allocation is shown against each of the three issues.