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QNO-- AS-10 What Should Not Be Included in Cost of Fixed Asset New Course – (M24E)
AIFS.31.70 Bhaskar CNO – Unique

"HR & Associates are the auditors of a large manufacturing company. The company has recently invested
huge amount in Property, Plant and Equipment (PPE) for its new unit. They have added many incidental

expenses to the cost of PPE. The junior audit team members are not sure about which costs should be
excluded from the cost of PPE. Give examples of costs that should not form part of costs of PPE."
Answer Examples of costs that are not costs of an item of property, plant and equipment are:
(i) Costs of opening a new facility or business, such as, inauguration costs;

(ii) Costs of introducing a new product or service (including costs of advertising and promotional
activities);

(iii) Costs of conducting business in a new location or with a new class of customer (including costs of
staff training); and

(iv) Administration and other general overhead costs.

QNO B/S (Intangible Fixed Assets, Existence)- Old Course – (M19M/N19R)
AIFS.35 Bhaskar CNO-AIFS-P2.040
Explain with examples the audit procedure to establish the existence of intangible fixed assets as at the

period- end.
Answer ➢ Existence
(Definition)
Since an Intangible Asset is an identifiable non-monetary asset, without physical substance.

(Active Use)
For establishing the existence of such assets, the auditor should verify whether such
intangible asset is in active use in the production or supply of goods or services, for rental
to others, or for administrative purposes.

Example- for verifying the existence of software, the auditor should verify whether such
software is in active use by the entity and for the purpose, the auditor should verify the sale
of related services/ goods during the period under audit, in which such software has been
used.

Example- For verifying the existence of design/ drawings, the auditor should verify the
production data to establish if such products for which the design/ drawings were purchased,
are being produced and sold by the entity.

(Not in Active Use)
In case any intangible asset is not in active use, deletion should have been recorded in the
books of account post approvals by the entity’s management and amortization charge should
have ceased to be charged beyond the date of deletion.

QNO Intangible Assets - Verifying Additions Old Course – (M22M/N22M)
AIFS. Bhaskar CNO-AIFS-P2.040
35.50
XYZ Ltd made huge additions to Intangible assets during the period 01-04-2021 to 31-03-2022 i.e. period
under audit. You have been appointed as an auditor and you want to verify the additions made to intangible
assets during the period. Suggest the audit procedure to verify the additions to intangible assets.
Answer 1. Verify the movement in the intangible assets schedule (asset class wise like software, designs/ drawings,
goodwill etc.) compiled by the management i.e. Opening balances + Additions – Deletions = Closing
balances. Tally the closing balances to the entity’s books of account.
2. Check the arithmetical accuracy of the movement in intangible assets schedule.
For additions during the period under audit, obtain a listing of all additions from the management and
undertake the following procedures:
(i) For all material additions, verify whether such expenditure meets the criterion for recognition of an
intangible asset as per AS 26.
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