Page 164 - CA Inter Audit PARAM

CA Ravi Taori

QNO-- Disclosure - Borrowings on the Basis of Current Assets New Course – (M24R)
AIFS.25.30 Bhaskar CNO – AIFS-P1.110

Droma Shoes Private Limited was established in year 2022-23 for manufacturing of footwear. As funds were
needed to carry on its business activities - including for purchase of different raw materials, incurring of
regular expenses like power and fuel and payment of wages etc., it had got sanctioned a credit facility
amounting to ₹ 2 crores repayable on demand from a bank against primary security of its current assets and
collateral security of residential house of one of its directors. Duly signed guarantee documents by directors
in favour of bank also form part of bank’s loan documentation. Account statement of above facility

downloaded from bank’s website shows debit balance of ₹ 1.85 crores as on 31st March, 2023. The
operations in above credit facility are satisfactory. In this regard: -

(i) Identify nomenclature of such credit facility given by banks. How would above amount of ₹ 1.85 crores
be reflected and classified in financial statements of company as on 31.3.23?

(ii) Also state specific disclosure requirements of Schedule III of Companies Act, 2013 in relation to above.
Answer (i) The type of credit facilities referred to in above situation given by banks to meet working capital
requirements of business which are repayable on demand are known as “cash credit
facilities/overdraft” facilities. The amount of ₹ 1.85 crores outstanding as on 31st March, 2023 reflects
borrowings of the company and it would be classified as “short-term borrowings” as loans repayable
on demand from banks under current liabilities in balance sheet of the company. Borrowings shall
further be subclassified as secured.

(ii) Specific disclosure requirements of short-term borrowings under Schedule III to Companies Act, 2013
in given situation are as under: -

• Nature of security i.e. primary security of current assets and collateral security of residential house
belonging to a director shall be specified.

• As loans have been guaranteed by directors, the aggregate amount of such loans shall be disclosed.

To be disclosed as Additional Regulatory Information
Since the Company has borrowings from bank on the basis of security of current assets, it shall also
disclose the following:-
(a) whether quarterly returns or statements of current assets filed by the Company with banks or
financial institutions are in agreement with the books of accounts.

(b) if not, summary of reconciliation and reasons of material discrepancies, if any to be adequately
disclosed.

QNO-- Trade Payable Completeness Audit Procedures New Course – (S24M)
AIFS.29.20 Bhaskar CNO – AIFS-P1.120

M/s Veer and Associates is appointed as auditor of KMP limited. During the audit, auditor wants to verify
that trade payables and liability balances that were supposed to be recorded have been recognized in m

the financial statements. Which assertion auditor wants to ensure and what audit procedures should be
followed by him in this regard?
Answer Auditor wants to ensure Completeness and the audit procedures to be followed by him to verify that trade
payables and liability balances that were supposed to be recorded have been recognized in the financial
statements are as follows:
• The auditor needs to perform the following cut off procedures:
− For the last 5 invoices received/ recorded at the end of the reporting date (cut off date) and
which have been included in the trade payables; the goods should have been received/ risk
and rewards of ownership in goods should have been transferred in favour of the entity;

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