Page 189 - CA Inter Audit PARAM

CA Ravi Taori
Also indicate disclosure requirements of above as per Companies Act, 2013
Answer ➢ Gain/(loss) on sale of investment in mutual funds:
• Determination of Gain or loss and its recording

• Verify that Gain/(loss) on sale of investment in mutual funds is recorded as other
income only on transfer of title from the entity and
• It is determined as the difference between the redemption price and carrying value
of the investments.
• For the purpose, obtain the mutual fund statement and trace the gain / loss as
recorded in the books of account to the gain/ loss as reflected in the statement.

• Disclosure Requirements:
Ensure whether the following disclosures as required under Ind AS compliant Schedule III to
Companies Act, 2013 have been made:
Whether ‘other income’’ has been classified as:
• Interest income
• Dividend income
• Other non-operating income (net of expenses directly attributable to such income)

Old Course -- (M18E/N23E)
QNO P&L (Revenue Nature Expenses Which Can be Capitalised) #Unique
AIFS.75
Expenses which are essentially of a revenue nature if incurred for creating an asset or adding to its value
for achieving higher productivity are regarded as expenses of a capital nature. Describe any five such
expenses.
OR
At the time of scrutiny of General Ledger, the Auditor observes that certain expenses essentially of a
revenue nature are wrongly treated as capital expenditure. State examples of such expenses and the duties
of auditor in this regard.
Answer ➢ Expenses which are essentially of a Revenue Nature, if incurred for creating an asset or adding to its
value for achieving higher productivity, are regarded as expenditure of a capital nature. Examples of
capital expenditure are-

• Direct Material
• Material and related expenses- capital expenditure when expended on the
construction of a building or erection of machinery.

• Direct Overhead
• Freight- capital expenditure when incurred in respect of purchase of plant and
machinery
• Repair- Major repairs of a fixed asset that increases its productivity.

• Direct Labour
• Wages- Wages paid on installation costs incurred in Plant & machinery.

• Administrative Expense
• Legal expenses- capital expenditure when incurred in connection with the purchase
of land or building.
• Interest- Interest paid for the qualification period as per AS-16 i.e., before the asset
is constructed.

• Duty of the auditor
Whenever, therefore, a part of the expenditure, ostensibly of a revenue nature, is capitalized
it is the duty of the auditor not only to examine the precise particulars of the expenditure
but also the considerations on which it has been capitalized.

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