Nesud Co has credit sales of $45 million per year and on ave..

第1题

Oscar Co designs and produces tracking devices. Th...

Oscar Co designs and produces tracking devices. The company is managed by its four founders, who lack business administration skills. The company has revenue of $28m, and all sales are on 30 days’ credit. Its major customers are large multinational car manufacturing companies and are often late in paying their invoices. Oscar Co is a rapidly growing company and revenue has doubled in the last four years. Oscar Co has focused in this time on product development and customer service, and managing trade receivables has been neglected. Oscar Co’s average trade receivables are currently $5.37m, and bad debts are 2% of credit sales revenue. Partly as a result of poor credit control, the company has suffered a shortage of cash and has recently reached its overdraft limit. The four founders have spent large amounts of time chasing customers for payment. In an attempt to improve trade receivables management, Oscar Co has approached a factoring company. The factoring company has offered two possible options: Option 1 Administration by the factor of Oscar Co’s invoicing, sales accounting and receivables collection, on a full recourse basis. The factor would charge a service fee of 0·5% of credit sales revenue per year. Oscar Co estimates that this would result in savings of $30,000 per year in administration costs. Under this arrangement, the average trade receivables collection period would be 30 days. Option 2 Administration by the factor of Oscar Co’s invoicing, sales accounting and receivables collection on a non-recourse basis. The factor would charge a service fee of 1·5% of credit sales revenue per year. Administration cost savings and average trade receivables collection period would be as Option 1. Oscar Co would be required to accept an advance of 80% of credit sales when invoices are raised at an interest rate of 9% per year. Oscar Co pays interest on its overdraft at a rate of 7% per year and the company operates for 365 days per year. (a) Calculate the costs and benefits of each of Option 1 and Option 2 and comment on your findings. (b) Discuss reasons (other than costs and benefits already calculated) why Oscar Co may benefit from the services offered by the factoring company.

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第2题

Smith Co has the following transactions: 1. Purchase of goods on credit from T Rader: $450

2. Return of goods purchased on credit last month to T Rouble: $700 What are the correct ledger entries to record these transactions？

A、Dr Purchases $450 Dr Purchase Returns $700 Cr Cash $450 Cr Trade Payables $700

B、Dr Purchases $450 Dr Trade Payables $700 Cr Purchase Returns $1,150

C、Dr Purchases $450 Dr Trade Payables $250 Cr Purchase Returns $700

D、、 Dr Purchase Returns $700 Dr Purchases $450 Cr Trade Payables $1,150

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第3题

Due to a failure to pay its debts, in October 2014 the court accepted an application for b

ankruptcy by the creditors of Hangle Garment Co and designated a bankruptcy administrator. The bankruptcy administrator found that:

(i) Hangle Garment Co had given up a credit of RMB 500,000 yuan owed by its affiliate enterprise in August 2013;

(ii) Some shareholders of Hangle Garment Co failed to make full capital contributions as prescribed in the articles of association of the company;

(iii) There was a contract between Hangle Garment Co and Bright Department Store, which was concluded before the bankruptcy application was accepted and had been partly performed.

Required:

In accordance with the Enterprise Bankruptcy Law of China:

(a) State whether the action of giving up credit could be revoked during the process of liquidation. (2 marks)

(b) State how the lack of full capital contributions by some of the shareholders of the company should be dealt with. (2 marks)

(c) State what right the bankruptcy administrator has regarding the partly-performed contract between Hangle Garment Co and Bright Department Store. (2 marks)

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第4题

The current assets and current liabilities of CSZ Co at the end of March 2014 are as follo

ws:

The current assets and current liabilities of CSZ

For the year to end of March 2014, CSZ Co had domestic and foreign sales of $40 million, all on credit, while cost of sales was $26 million. Trade payables related to both domestic and foreign suppliers.

For the year to end of March 2015, CSZ Co has forecast that credit sales will remain at $40 million while cost of sales will fall to 60% of sales. The company expects current assets to consist of inventory and trade receivables, and current liabilities to consist of trade payables and the company’s overdraft.

CSZ Co also plans to achieve the following target working capital ratio values for the year to the end of March 2015:

The current assets and current liabilities of CSZ

Required:

(a) Calculate the working capital cycle (cash collection cycle) of CSZ Co at the end of March 2014 and discuss whether a working capital cycle should be positive or negative. (6 marks)

(b) Calculate the target quick ratio (acid test ratio) and the target ratio of sales to net working capital of CSZ Co at the end of March 2015. (5 marks)

(c) Analyse and compare the current asset and current liability positions for March 2014 and March 2015, and discuss how the working capital financing policy of CSZ Co would have changed. (8 marks)

(d) Briefly discuss THREE internal methods which could be used by CSZ Co to manage foreign currency transaction risk arising from its continuing business activities. (6 marks)

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第5题

Mercury Motoring Co （Mercury) specialises in manufacturing engine parts for motor cars and

Mercury Motoring Co (Mercury) specialises in manufacturing engine parts for motor cars and the company has a diverse customer base but seven significant customers. The company’s year end was 30 September 2015.

During the year, a number of the company’s significant customers have experienced a fall in sales, and consequently they have purchased fewer items from Mercury. As a result, Mercury has paid a number of its suppliers later than usual and some of them have withdrawn credit terms meaning the company must pay cash on delivery. One of Mercury’s main suppliers is threatening legal action to recover the sums owing. As a result of the increased level of payables, the company’s current ratio has fallen below 1 to 0·9 for the first time.

Mercury has produced a cash flow forecast to 30 June 2016 and this shows net cash outflows until May 2016. Mercury has a loan of $2·3 million which is due for repayment in full by 30 September 2016.

The finance director has just informed the audit manager that there is a possible change in legislation which will result in one of Mercury’s top product lines becoming obsolete as it will not comply with the proposed law. The prepared cash flow forecasts do not reflect this possible event.

Required:

(a) Explain FIVE potential indicators that Mercury Motoring Co is NOT a going concern. (5 marks)

(b) Describe the audit procedures which you should perform. in assessing whether or not Mercury Motoring Co is a going concern. (5 marks)

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第6题

Hummingbird Scents Co （Hummingbird) manufactures and sells luxury toiletries; they have be

Hummingbird Scents Co (Hummingbird) manufactures and sells luxury toiletries; they have been trading for over 20 years and the company’s year end is 30 September 2014. Hummingbird sells products to trade customers via its own website; this represents 60% of revenue. Remaining revenue is generated by contracts to supply toiletries to hotels. Below is a description of the sales system.

Hotel revenue

The hotel revenue is made up of four key customers. Hummingbird has one sales clerk, Brenda, who maintains all aspects of this revenue stream; Brenda receives customer orders, raises sales invoices and processes payments. In raising invoices, the sales system automatically inserts the online trade customer prices for products. However, each hotel customer has contracted prices which are lower than the online prices and hence Brenda manually edits the invoices prior to despatch.

Online revenue

New trade customers are set up in the sales ledger master file upon passing suitable credit checks, and a credit limit is set at this stage by the finance director. Customers place online orders up to their pre-set credit limit; they receive an email confirmation and the sales order interfaces into the despatch system. The order number is linked to the customer account number. Goods are despatched daily with a goods despatched note which is referenced to the sales order number but are not sequentially numbered. Hummingbird used to despatch goods via a reliable national courier company. However, to reduce costs they have changed to a cheaper local courier and some orders have been delivered to customers late.

Trade customers’ sales invoices are automatically generated by the system on the day the online order is placed. The prices are inserted in accordance with the website rates. Occasionally Hummingbird makes special offers or discounts sales; when this occurs the master file data has to be amended to ensure that the correct prices are used on invoices. This task is usually performed by a senior sales ledger clerk.

Revenue and receivables records

On a monthly basis statements are sent to the hotel customers; a number of trade customers have been requesting monthly statements and Hummingbird is considering this request. The company only reconciles the sales ledger control account at the end of September in order to verify the year-end balance.

Required:

(a) As the external auditor of Hummingbird Co, write a report to management in respect of the sales system described above which:

(i) Identifies and explains SEVEN deficiencies in the sales system; and

(ii) Provides a recommendation to address each of these deficiencies.

A covering letter IS required.

Note: Up to two marks will be awarded within this requirement for presentation and the remaining marks will be split equally between each part. (16 marks)

(b) Describe substantive procedures the auditor should perform. to confirm Hummingbird Co’s revenue. (4 marks)

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第7题

Pear International Co （Pear) is a manufacturer of electrical equipment. It has factories a

Pear International Co (Pear) is a manufacturer of electrical equipment. It has factories across the country and its customer base includes retailers as well as individuals, to whom direct sales are made through their website. The company’s year end is 30 September 2012. You are an audit supervisor of Apple & Co and are currently reviewing documentation of Pear’s internal control in preparation for the interim audit.

Pear’s website allows individuals to order goods directly, and full payment is taken in advance. Currently the website is not integrated into the inventory system and inventory levels are not checked at the time when orders are placed.

Goods are despatched via local couriers; however, they do not always record customer signatures as proof that the customer has received the goods. Over the past 12 months there have been customer complaints about the delay between sales orders and receipt of goods. Pear has investigated these and found that, in each case, the sales order had been entered into the sales system correctly but was not forwarded to the despatch department for fulfilling.

Pear’s retail customers undergo credit checks prior to being accepted and credit limits are set accordingly by sales ledger clerks. These customers place their orders through one of the sales team, who decides on sales discount levels.

Raw materials used in the manufacturing process are purchased from a wide range of suppliers. As a result of staff changes in the purchase ledger department, supplier statement reconciliations are no longer performed. Additionally, changes to supplier details in the purchase ledger master file can be undertaken by purchase ledger clerks as well as supervisors.

In the past six months Pear has changed part of its manufacturing process and as a result some new equipment has been purchased, however, there are considerable levels of plant and equipment which are now surplus to requirement. Purchase requisitions for all new equipment have been authorised by production supervisors and little has been done to reduce the surplus of old equipment.

Required:

(a) In respect of the internal control of Pear International Co:

(i) Identify and explain FIVE deficiencies;

(ii) Recommend a control to address each of these deficiencies; and

(iii) Describe a test of control Apple & Co would perform. to assess if each of these controls is operating effectively. (15 marks)

(b) Describe substantive procedures you should perform. at the year end to confirm each of the following for plant and equipment:

(i) Additions; and

(ii) Disposals. (4 marks)

(c) Pear’s finance director has expressed an interest in Apple & Co performing other review engagements in addition to the external audit; however, he is unsure how much assurance would be gained via these engagements and how this differs to the assurance provided by an external audit.

Required:

Identify and explain the level of assurance provided by an external audit and other review engagements. (3 marks)

Pear’s directors are considering establishing an internal audit department next year, and the finance director has asked about the differences between internal audit and external audit and what impact, if any, establishing an internal audit department would have on future external audits performed by Apple & Co.

Required:

(d) Distinguish between internal audit and external audit. (4 marks)

(e) Explain the potential impact on the work performed by Apple & Co during the interim and final audits, if Pear International Co was to establish an internal audit department. (4 marks)

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第8题

Introduction and client backgroundYou are an audit senior in Staple and Co and you are com

Introduction and client background

You are an audit senior in Staple and Co and you are commencing the planning of the audit of Smoothbrush Paints Co for the year ending 31 August 2010.

Smoothbrush Paints Co is a paint manufacturer and has been trading for over 50 years, it operates from one central site, which includes the production facility, warehouse and administration ffices.

Smoothbrush sells all of its goods to large home improvement stores, with 60% being to one large chain store Homewares. The company has a one year contract to be the sole supplier of paint to Homewares. It secured the contract through signifi cantly reducing prices and offering a four-month credit period, the company’s normal credit period is one month.

Goods in/purchases

In recent years, Smoothbrush has reduced the level of goods directly manufactured and instead started to import paint from South Asia. Approximately 60% is imported and 40% manufactured. Within the production facility is a large amount of old plant and equipment that is now redundant and has minimal scrap value. Purchase orders for overseas paint are made six months in advance and goods can be in transit for up to two months. Smoothbrush accounts for the inventory when it receives the goods.

To avoid the disruption of a year end inventory count, Smoothbrush has this year introduced a continuous/perpetual inventory counting system. The warehouse has been divided into 12 areas and these are each to be counted once over the year. The counting team includes a member of the internal audit department and a warehouse staff member. The following procedures have been adopted;

1. The team prints the inventory quantities and descriptions from the system and these records are then compared to the inventory physically present.

2. Any discrepancies in relation to quantities are noted on the inventory sheets, including any items not listed on the sheets but present in the warehouse area.

3. Any damaged or old items are noted and they are removed from the inventory sheets.

4. The sheets are then passed to the fi nance department for adjustments to be made to the records when the count has fi nished.

5. During the counts there will continue to be inventory movements with goods arriving and leaving the warehouse.

At the year end it is proposed that the inventory will be based on the underlying records. Traditionally Smoothbrush has maintained an inventory provision based on 1% of the inventory value, but management feels that as inventory is being reviewed more regularly it no longer needs this provision.

Finance Director

In May 2010 Smoothbrush had a dispute with its fi nance director (FD) and he immediately left the company. The company has temporarily asked the fi nancial controller to take over the role while they recruit a permanent replacement. The old FD has notifi ed Smoothbrush that he intends to sue for unfair dismissal. The company is not proposing to make any provision or disclosures for this, as they are confi dent the claim has no merit.

Required:

(a) Identify and explain the audit risks identifi ed at the planning stage of the audit of Smoothbrush Paints Co. (10 marks)

(b) Discuss the importance of assessing risks at the planning stage of an audit. (4 marks)

(c) List and explain suitable controls that should operate over the continuous/perpetual inventory counting system, to ensure the completeness and accuracy of the existing inventory records at Smoothbrush Paints Co. (10 marks)

(d) Describe THREE substantive procedures the auditor of Smoothbrush Paints Co should perform. at the year end in confi rming each of the following:

(i) The valuation of inventory; (3 marks)

(ii) The completeness of provisions or contingent liabilities. (3 marks)

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第9题

You are an audit manager in Cedar & Co, responsible for the audit of Chestnut Co, a la

rge company which provides information technology services to business customers. The finance director of Chestnut Co, Jack Privet, contacted you this morning, saying:

‘I was alerted yesterday to a fraud being conducted by members of our sales team. It appears that several sales representatives have been claiming reimbursement for fictitious travel and client entertaining expenses and inflating actual expenses incurred. Specifically, it has been alleged that the sales representatives have claimed on expenses for items such as gifts for clients and office supplies which were never actually purchased, claimed for business-class airline tickets but in reality had purchased economy tickets, claimed for non-existent business mileage and used the company credit card to purchase items for personal use.

I am very worried about the scale of this fraud, as travel and client entertainment is one of our biggest expenses. All of the alleged fraudsters have been suspended pending an investigation, which I would like your firm to conduct. We will prosecute these employees to attempt to recoup our losses if evidence shows that a fraud has indeed occurred, so your firm would need to provide an expert witness in the event of a court case. Can we meet tomorrow to discuss this potential assignment？’

Chestnut Co has a small internal audit department and in previous years the evidence obtained by Cedar & Co as part of the external audit has indicated that the control environment of the company is generally good. The audit opinion on the financial statements for the year ended 31 March 2011 was unmodified.

Required:

(a) Assess the ethical and professional issues raised by the request for your firm to investigate the alleged fraudulent activity. (6 marks)

(b) Explain the matters that should be discussed in the meeting with Jack Privet in respect of planning the investigation into the alleged fraudulent activity. (6 marks)

(c) Evaluate the arguments for and against the prohibition of auditors providing non-audit services to audit clients. (6 marks)

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第10题

（a) You are the manager responsible for the audit of Dylan Co, a listed company, and you a

(a) You are the manager responsible for the audit of Dylan Co, a listed company, and you are reviewing the working papers of the audit file for the year ended 30 September 2012. The audit senior has left a note for your attention:

‘Dylan Co outsources its entire payroll, invoicing and credit control functions to Hendrix Co. In August 2012, Hendrix Co suffered a computer virus attack on its operating system, resulting in the destruction of its accounting records, including those relating to Dylan Co. We have therefore been unable to perform. the planned audit procedures on payroll, revenue and receivables, all of which are material to the financial statements. Hendrix Co has manually reconstructed the relevant figures as far as possible, and has supplied a written statement to confirm that they are as accurate as possible, given the loss of accounting records.’

Required:

(i) Comment on the actions that should be taken by the auditor, and the implications for the auditor’s report; and (7 marks)

(ii) Discuss the quality control procedures that should be carried out by the audit firm prior to the audit report being issued. (3 marks)

(b) You are also responsible for the audit of Squire Co, a listed company, and you are completing the review of its interim financial statements for the six months ended 31 October 2012. Squire Co is a car manufacturer, and historically has offered a three-year warranty on cars sold. The financial statements for the year ended 30 April 2012 included a warranty provision of $1·5 million and recognised total assets of $27·5 million. You are aware that on 1 July 2012, due to cost cutting measures, Squire Co stopped offering warranties on cars sold. The interim financial statements for the six months ended 31 October 2012 do not recognise any warranty provision. Total assets are $30 million at 31 October 2012.

Required:

Assess the matters that should be considered in forming a conclusion on Squire Co’s interim financial statements, and the implications for the review report. (6 marks)

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Nesud Co has credit sales of $45 million per year and on average settles accounts with tra