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Analytical Q

The document presents the draft financial statements of Dairy (Private) Limited for the year ended 30 June 2021, highlighting significant changes in equity, liabilities, and income compared to the previous year. It notes a substantial increase in sales and net profit, alongside a decrease in property, plant, and equipment due to disposals. The document requires the identification of unexplained fluctuations and inconsistencies through analytical procedures and outlines key audit procedures to address these issues.

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1 views1 page

Analytical Q

The document presents the draft financial statements of Dairy (Private) Limited for the year ended 30 June 2021, highlighting significant changes in equity, liabilities, and income compared to the previous year. It notes a substantial increase in sales and net profit, alongside a decrease in property, plant, and equipment due to disposals. The document requires the identification of unexplained fluctuations and inconsistencies through analytical procedures and outlines key audit procedures to address these issues.

Uploaded by

mhunain612
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ISA 520 – Analytical Procedures Chapter 2

Q8. You are the audit manager in a firm of chartered accountants. Your audit client Dairy (Private)
Limited (DPL) has emailed you its draft financial statements for the year ended 30 June 2021
along with related notes. The information provided by DPL is summarized below:
Draft statement of financial position as at 30 June 2021

2021 2020
Rs. In ‘000’
Equity and Reserves 35,922 26,000
Long- term loan 6,000 12,000
Trade and other payables 7,800 6,500
Equity and liabilities 49,722 44,500

Property, plant and equipment 22,630 26,818


Prepayments 1,500 -
Trade debtors 12,000 8,000
Inventory 13,000 7,000
Cash and bank balances 592 2,682
Assets 49,722 44,500

Draft income statement for the year ended 30 June 2021

2021 2020
Rs. In ‘000’
Sales 110,000 73,000
Cost of sales (83,050) (54,750)
Gross profit 26,950 18,250
Admin and marketing expense (12,100) (10,950)
Finance cost (675) (1,530)
Net profit before taxation 14,175 5,770
Taxation @ 30% (4,253) (1,731)
Net profit 9,922 4,039
Notes:
(i) During the year, sales price of DPL products were increased by 20%, to offset the
corresponding increase in cost of production.
(ii) On 30 June 2019, DPL had obtained a loan of Rs. 20 million, which is payable in 10 equal
quarterly instalments at the end of every quarter. The loan carries fixed mark-up rate of 9%.
(iii) Decrease in property, plant and equipment represents disposals made during the year, net of
depreciation.
(iv) Prepayment represents advance rental payment of warehouse, obtained for 6 months on 16
June 2021 at a monthly rent of Rs. 250,000.

Required:
Using analytical procedures, identify any four unexplained fluctuations and inconsistencies in
the above situation. State the key audit procedures which you would perform to address the
issues identified by you.

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