Page 129 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(b). Outflow of Cash of ` 16,600 from Operating Activities.
(c). Outflow of Cash of ` 16,600 from Financing Activities.
(d). Outflow of Cash of ` 16,600 from Miscellaneous Activities.
V. "During the financial year 2020-21, the fair value of Equipment 31 of Extremely Healthy and Very
Delicious Limited was more than the carrying amount of Equipment 31. In this situation which of
the following statement is correct:
(a). No depreciation would be charged on Equipment 31 for the financial year 2020-21 as Fair Value
was more than Carrying Amount for Equipment 31.
(b). No depreciation would be charged on Equipment 31 for the financial year 2020-21 as Fair Value
was more than Residual Value for Equipment 31.
(c). Depreciation would be charged on Equipment 31 for the financial year 2020-21 as Carrying
Amount was less than Fair Value for Equipment 31.
(d). Depreciation would be charged on Equipment 31 for the financial year 2020-21 as Residual Value
is less than Carrying Amount for Equipment 31.

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"A private company by the name of Very Composed Private Limited was required to be audited for the
financial year 2020-21. A partnership firm of Chartered Accountants, ST and Associates was appointed
as company auditor of Very Composed Private Limited. The partnership firm ST and Associates had two
partners, Mr. S and Mr. T. During the course of audit, one of the partners of ST and Associates, Mr. S
took up one of the important item of financial statements namely tangible fixed assets for the purpose
of audit.

While auditing tangible fixed assets Mr. S observed various accounting policies, procedures and
principles which management of Very Composed Private Limited had adopted for maintaining books of
accounts of the above mentioned company which he was unable to understand. For Example:
1. Expenses incurred on installation of new machinery purchased were treated as revenue
expenditure.
2. Expenses incurred regarding normal maintenance of old machinery were treated as capital
expenditure.
3. Depreciation was not charged on building of Very Composed Private Limited on the reason that
it was non – depreciating in nature.
4. The appropriate authority of Very Composed Private Limited had not taken steps for assessing
impairment loss on machinery.
The above mentioned four examples were some of the issues which Mr. S was unable to understand
while auditing tangible fixed assets of Very Composed Private Limited.
Keeping the basic concepts and accounting principles regarding tangible fixed assets in mind answer the
following multiple choice questions that follow:"
I. "Expenses incurred on installation of new machinery by Very Composed Private Limited should
be treated as:
(a). Revenue Expenditure
(b). Capital Expenditure
(c). Deferred Revenue Expenditure
(d). Partly Revenue Expenditure and Partly Capital Expenditure
II. "Expenses incurred on normal maintenance of old machinery by Very Composed Private Limited
should be treated as:
(a). Capital Expenditure
(b). Deferred Revenue Expenditure
(c). Partly Revenue Expenditure and Partly Capital Expenditure
(d). Revenue Expenditure
III. "In books of accounts of Very Composed Private Limited, building should be treated as:
(a). Depreciating Tangible Fixed Asset
(b). Non-Depreciating Tangible Fixed Asset
(c). Depreciating Intangible Fixed Asset

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