The Institute of Chartered Financial Analysts of India University 2006 PE- II Auditing - Question Paper
CA PE - II:: Auditing : November 2006
Roll No.....................
Total No. of Questions 8] [Total No. of Printed Pages2
Time Allowed : 3 Hours Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi
will not be valued.
Answer Questions 1 and 2 and any four from the rest.
Marks
1. As an Auditor, comment on the following situations/statements:
(a) SMT Enterprises entered into a contract for sale of its goods worth Rs. 24 5 lacs with ST Ltd- The goods were inspected, approved and finalised by the inspection team of ST Ltd. ST Ltd. made the whole payment of Rs. 24 lacs.
However, it requested SMT Enterprises to dispatch the goods in six equal monthly instalments from October, 2005 to March, 2006. In the month of January,2006, due to natural calamity, ST Ltd. informed SMT Enterprises
to stop dispatches of the remaining three instalments until further notice. At the time of finalising its accounts for the financial year 2005-06, SMT Enterprises booked sales amounting to Rs. 12 lacs and showed remaining Rs. 12 lacs as Advance Against Sales.
(b) X Ltd. had a major break down in its plant in the month of February, 2006. 5 In the month of March, 2006 it entered into an agreement with an engineering firm for the purpose of repairing its plant for a consideration of
Rs. 180 lacs. The engineering firm started the repairing work in the month of April, 2006 and completed it in the same month. X Ltd. made the provision for said expenditure on repairs in its books of account for the financial year 2005-06 on the plea that the event of break down leading to repair expenditure had taken place in the financial year 2005-06, binding contract for repairs was entered into during the financial year 2005-06 and repair work was also completed before the financial statements were approved by the Board of Directors of the company.
(c) The management tells you that WIP is not valued since it is difficult to 4 know the same in view of multiple processes involved and in any case
opening and closing WIP would be more or less the same.
(d) JKT Ltd. having Rs. 40 lacs paid up capital, Rs. 9.50 lacs reserves and 4 turnover of last three consecutive financial years, immediately preceding
the financial year under audit, being Rs. 4.90 crores, Rs. 4.50 crores and Rs.
6 crores, but does not have any internal audit system. In view of the
2. (a) Managing Director of PQR Ltd. himself wants to appoint Shri Ganpati, a 4
practicing chartered Accountant, as first auditor of the company. Comment on the proposed action of the Managing Director.
(b) PBS & Associates, a firm of Chartered Accountants, has three partners P, B 4 and S. The firm is already having audit of 60 companies, which includes 2 branch audits of a company. The firm is offered 3 company audits, out of
which one is a private company, other is a foreign company and the third one is a public company. Decide and advise whether PBS & Associates will exceed the ceiling prescribed under Section 224(1B) by accepting the above audit assignments?
(c) RT Ltd. Received Rs. 50 lacs as grant from the State Government towards 4 the part cost of a specific machinery. The company credited the above sum
of Rs. 50 lacs as income in its Profit and Loss Account for the year. What are your views on the accounting treatment of the above receipt of Rs. 50 lacs?
(d) Audit of expenditure is one of the major components of Government Audit. 6 In this context, write in brief what do you understand by:
(i) Audit against Rules and Orders
(ii) Audit of Sanctions
(iii) Propriety Audit
PD