You are the manager responsible for the audit of Aspersion, a limited liability company, which mainly provides national cargo services with a small fleet of aircraft. The draft accounts for the year ended 30 September 2001 show profit before taxation of Kshs27 million (2000 Kshs22 million) and total assets of Kshs104 million (2000 Kshs98 million).The following issues are outstanding and have been left for your attention:

(1)The sale of a cargo carrier to Abra, a private limited company, during the year resulted in a loss on disposal of Kshs400,000. The aircraft cost Kshs12 million when it was purchased in October 1992 and was being depreciated on a straight-line basis over 20 years. The minutes of the board meeting at which the sale was approved record that Aspersions finance director, Iain Jolteon, has a 30% equity interest in Abra.

(2) As well as cargo carriers, Aspersion owns two light aircraft which were purchased in 1998 to provide business passenger flights to a small island under a three year service contract. It is now known that the contract will not be renewed when it expires at the end of March 2002. The aircraft, which cost Kshs450,000 each, are being depreciated over fifteen years.

(3) Deferred tax amounting to Kshs570,000 as at 30 September 2001 has been calculated relating to tangible non-current assets at a tax rate of 30% using the full provision method (IAS 12 Income Taxes).On 1 December 2001, the government announced an increase in the corporate income tax rate to 34%.The directors are proposing to adjust the draft accounts for the further liability arising.

Required:

For each of the above points:

(i)Comment on the matters that you should consider; and

(ii)State the audit evidence that you should expect to find, in undertaking your review of the audit working papers and financial statements of Aspersion.