Page 91 - CA Inter MCQ Book

CA RAVI TAORI CA INTER AUDIT MCQs
(c). Outcomes I and III are established after inspection. However, outcome II may not be necessarily
established.
(d). Outcome II and III are established after inspection. However, outcome I may not be necessarily
established."
V. " It was observed by auditors that, out of total rice physically counted on 31st March 2020 about
67 quintals of rice belonged to M/s PQR, a proprietary concern which had sent paddy to this
company’s plant for extraction of rice. What would be treatment of this item in financial
statements of company?
(a). The value of 67 quintals rice would be reflected in company’s financial statements as per method
of valuation adopted by the company.
(b). The value of 67 quintals rice would be reflected in company’s financial statements as per method
of valuation adopted by the proprietary concern.
(c). The value of 67 quintals rice would not be reflected in company’s financial statements.
(d). The value of 67 quintals rice would be reflected in proprietary concern’s financial statements as
per method of valuation adopted by the company."

6 (N20R)
"A partnership firm of Chartered Accountants, YZ and Associates were appointed as auditor of company
UV Private Limited. The financial year for which YZ and Associates were to audit books of accounts of
UV Private Limited began on 1 April 2018 and ended on 31 March 2019.

YZ and Associates consisted of four partners namely Mr. Y, Mr. Z, Mr. G and Mr. H. While auditing books
of accounts of UV Private Limited for the period beginning on 1 April 2018 and ending on 31 March 2019,
one of the partners of YZ and Associates namely Mr. H took up the expenses part for the purpose of
audit.

The management of UV Private Limited had adopted various accounting policies and principles related
to expenses which Mr. H as auditor of UV Private Limited was unable to understand. Some of the issues
which Mr. H was unable to understand are mentioned as follows:
(1) Power and Fuel expenses paid for the months of April 2019 and May 2019 have been included and
shown as Power and Fuel expenses for the period beginning 1 April 2018 and ending 31 March 2019.
(2) Personal Rent Expenses of the son of one of the director, Mr. T of UV Private Limited have been
shown as Rent Expenses of business of UV Private Limited.
(3) Repair and Maintenance Expenses for the months of February 2019 and March 2019 were still
outstanding and were not shown in Balance Sheet of UV Private Limited.
(4) Repair and Maintenance Expenses for the financial year 1 April 2018 to 31 March 2019 were very
high as compared to financial year 1 April 2017 to 31 March 2018. The auditor Mr. H asked the
appropriate authority about the reasons for such huge differences in amounts of two financial years.
(5) While verifying the insurance expenses, the insurance policies were not shown to auditor Mr. H.

The above mentioned five points were some of the issues which Mr. H was unable to understand.
Answer the following questions:"
I. " As per the point number (1) mentioned in the above case, the Power and Fuel Expenses paid for
the months of April 2019 and May 2019 must be shown under asset side of balance sheet of UV
Private Limited as on 31 March 2019 as:

(a). Outstanding Power and Fuel Expenses
(b). Prepaid Power and Fuel Expenses
(c). Power and Fuel Expenses
(d). Power and Fuel Expenses Payable"
II. " As per point number (2) mentioned above in the case, the Personal Rent Expenses of the son of
one of the director Mr. T were added to Rent Expenses of business of UV Private Limited. The
amount of personal rent expenses of the son of the director Mr. T must be:

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