I.

Accounting
1. Inventory
KLE is a manufacturing company. As at 31/12/2018, the value of inventory was
estimated 500,000 $ as fair value. However, the value in book was 600,000 $ as the
cost. The company has plan to sell this inventory to ABC company at 5/01/2019 and
signed contract. But at 03/01/2018 the warehouse was fired and lost a part of inventory.
KLE informed about status to ABC co and promised that trying the best to provide
goods as the contract but delay 5 days and ABC approved.
a) What is value of inventories as at 31/12/2018?
b) The event” the warehouse is fired” is adjusted or not adjusted? Why and what do you
do to comply with law and regulation?

Answers:

a) According to IAS 02- Inventory the value of inventory is lower of Cost and NRV (Net
realizable value).
So the cost: $600,000
The NRV= Selling price – Cost to sell= $500,000
So the value of inventory at 31/12/2018 is $500,000.
b) According to IAS 23 - Events after reporting period (subsequent event) Adjusting
events are those providing evidence of conditions existing at the end of the reporting
period, whereas non-adjusting events are indicative of conditions arising after the
reporting period (the latter being disclosed where material).
So, the event “the warehouse is fired” incurred after 31/12 and it just is disclosed on
Note to financial statement.

2. Fixed assets
On 20 November 2018, KLE Co bought a machine at cost $200,000 (not include VAT)
for production purpose, expected useful life was 10 years. KLE used straight line
method for all classes of fixed assets. On 20 November 2022, KLE upgraded this
machine and expense was $50,000. The expected useful life was 8 years. The Chief
accountant changed depreciation method “Reducing balance method” for this machine
from 20 November 2022.
a) What is accumulated depreciation at 20 November 2022?
b) Whether CA could change the depreciation method? Why or why not?

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Answer:
𝐶𝑜𝑠𝑡 200,000
a) Depreciation per year= = =20,000
𝑈𝑠𝑒𝑓𝑢𝑙 𝑙𝑖𝑓𝑒 10
So from 20 Nov 2018 to 20 Nov 2022 is 4 years and accumulated depreciation at 20
Nov 22 is $80,000.
b) No, because according to Circular 200, the depreciation method must be applied for
whole fiscal year. The CA changed depreciation method from 20 November to be not
allowed.

II. Auditing
1. Audit risk
KLE Co is a fast food company and it owns many retail stores which sell hamburger
and hot dog. And its year end 31/12/2018, you are audit manager of Mentoring audit
Co, you are currently planning the audit of KLE. You attended the planning meeting
with the audit engagement partner and chief accountant and the minutes from the
meeting are presented below:
- KLE has capitalized of $3 million for R& D new product during the year and was not
close finished new product.
- As a result of the increase in revenue, KLE had double sales than previous year. The
salary policy for sale department depended on the revenue, so amount of outstanding
receivables was 1.5 times than previous year.

Required:

Identity and describe audit risks and explain the auditor’s response for each risk in
planning the audit of KLE Co.

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Answer:
Audit risks
The company sells perishable products and
may not be saleable. Therefore Inventory
may be misstated because it is stated at a
value in excess of the net realizable value
(NRV)
With retail stores, the company probably
sells its products in cash, increasing the risk
of incomplete or unrecorded income due to
fraud or theft.
The company has capitalized $3 mil
Research & Development (R&D) expense
of a new product which has not been
completed. In accordance with VAS 03
Intangible Fixed Assets (ITFA), one of the
four (04) recognition criteria is “the
certainty to acquire future economic
benefits brought about the asset”. In this
case, the product is not certain to acquire
future economic benefit and should not be
capitalized during the year. As a result,
ITFA has been misstated.
The salary for sales department increases Reconcile total revenue of sales report from
when revenue increases, increasing risk of sales department with total revenue in
revenue misstated due to fictitious sales. general ledger.
3
Audit responses
At the physical inventory count particular
attention needs to be paid to the instruction
to identify slow-moving items.
Review the year-end aged inventory
analysis for evidence of slow-moving
inventory.
Extension of the review of post year-end
sales values for items inventory at
31/12/2018 to assess their NRV.
Physical controls over cash at retail stores
will need to be observed.
i chiu
Reconcile total income record and actual
banking.
Reconcile a sample of till records to sales
records.
A physical cash count should be carried out
as at 31.12.2018 under auditor’s
observation.
Pay more attention to review list of fixed
assets (including intangible fixed assets)
and items capitalized during the year to
assess whether they should be capital
expense or revenue expense.
Select items capitalized during the year and
perform checking to supporting documents
to ensure the recorded amounts were
accurate.
 Particular attention need to be paid to when
assessing about the revenue recognition
process.
Select sample items recorded during the
year and check to their supporting
documents.

Higher balance of account receivable (AR)
might indicate a risk of irrecoverable debts
or incomplete record of provision for
doubtful debts.
Review year-end AR aging report analysis
and particular attention need to be paid to
the provision for doubtful debts.
Review post year end AR balances as at
31.12.2018 to assess the possibility of
making provision for doubtful debt.

III. English

1. Education is the most important possession that a person can have.

From the prehistoric time, education has always been an indispensable part of society in
spite of its existence in various forms. It is widely accepted to be the most important
possession of a person and I am totally of support to this assertion.

Education, from a broad perspective, is not limited to the formal schooling, but refers to all
processes of obtaining knowledge and thereby better one’s self. Education serves to
generate materials for society. As can be seen, creative and exceptional ideas often exist in
the mind of well-educated people, who know exactly how to apply that creativity in reality
and create more materialistic possession for their own. Education helps to build up two
crucial things for a successful life: the awareness to accountability and the competency to
be self-responsible. They are also the two lessons that Jack Ma, a renowned billionaire,
used to teach his children. He donated most of his property for the charity but not for his
descendants, because he knew that money could always be reproduced, but the chances of
learning, once lost, would take a longer time and higher cost to be substituted.

Besides, education acts as a tool for maintaining the general wellbeing of human-beings.
In terms of physical health, a person that is well-equipped with knowledge would pay more
attention to their daily meals with a balanced diet as well as proper exercises. In terms of
mental health, education prepares both social and emotional skills for better relationships
in life. When people know how to communicate with others effectively, they would open
up for themselves more windows of opportunities and fill their life with joyfulness.

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In conclusion, it is no doubt that education plays a leading role in the development of
humans. It exists so obvious in every single second of life that if one day education
disappears, human might be on the verge of extinction.

2. Some people think that parents should teach children how to be good members of
society. Others, however, believe that school is the place to learn this. Discuss both
these views and give your own opinion.

When it comes to education for the future generations of a society, many people believe
that it is the accountability of either families or schools. However, in my perspectives, both
parents and teachers are crucial in educating a child to be a good member of the society.

Families serve to equip children with historical backgrounds of their own countries as well
as build up moral values for them. It is undoubted that cultural values are preserved not
only in the performing arts but also in the customs people practice in their daily life.
Children, through that daily exposure, unconsciously absorb their rich cultures, which
nurtures their patriotism and national pride. Moreover, this form of education could start
very early. Since a child was born, their parents have taught them about unconditional love,
responsibility, discipline, bravery and self-esteem through simple stories. This way of
teaching is so easy to understand that children would never imagine that they have actually
learn something, but actually they do.

In companion with families, schools provide students with a range of general knowledge
about the world and create a more out-of-comfort-zone exposure for them in order to
broaden their vision. Though the education from parents could be very effective, their
always exist certain limitations in their scope of knowledge, which need to be filled up by
specialized authorities. Schools, in this case, hold the chance of demonstrating their roles
and fulfill students’ needs. Moreover, when coming to the schools, children have to interact
with more strangers, thereby having opportunities to practice and master their
communication skills, problem-solving skills as well as self-management skills, which are
necessary for their future development.

In conclusion, there should be a neat cooperation between families and schools in the
teaching process. Only in this case could the children enjoy the most well-rounded
education and become well-adjusted citizens to society.