Prochain sells its products in chain stores. Prochain is allocated space in the departmental stores where it can display and market its fashion goods, the space is called ‘the model area’. Prochain pays for the design, decoration and construction of the model areas. The area is used approximately for 2 years after which it must be dismantled at a cost of 20% of the original cost. The current accounting practice is to charge the full cost of the model areas in POL in the year when the area is dismantled.
 
The accumulated cost of model areas shown in SFP on 31 May 06 is $20m. The company estimated that the average age of its model areas is eight months on 31 May 06. Assume a discount rate of 5.5%

Comment on the matters to be considered, and explain the audit evidence you should expect to find during your file review in respect of the trade receivable recognized in relation to Cherry Co.

Marks:

Evaluate the audit junior's concerns regarding the management of the audit of Sultana Co.

Marks:

Explain the components of audit risk and, for each component, state an example of a factor which can result in increased audit risk.

Marks:

Using the information provided, identify and describe FIVE audit risks and explain the auditor’s response to
each risk in planning the audit of Abrahams Co.

Marks:

Describe substantive procedures you should perform to obtain sufficient appropriate evidence in relation to:
(i) Inventory held at the third party warehouses; and
(ii) Use of standard costs for inventory valuation.

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Prepare a statement of profit or loss for the next year for APX Co using the information provided

Marks: 4

Prepare a statement of financial position at the end of the next year for APX Co using the information above

Marks: 5

Analyze and discuss the working capital financing policy of APX Co

Marks: 6

Discuss the role of financial intermediaries in providing short-term finance for use by business organizations.

Marks: 5

Advise whether the factor’s offer is financially acceptable to Widnor Co.

Marks: 7