CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

While auditing Bharat Engineering Ltd, the auditor finds that a plant purchased during the year for Rs 80 lakh was recorded in the fixed asset register, but the supplier's invoice is dated 3 April of the next year, though delivery and installation are shown as 28 March. The plant was put to use in the first week of April, as per the production manager's note. What is the most appropriate audit conclusion regarding capitalisation in the current year?

The auditor should verify delivery, installation and use dates from independent records and, if the plant was not acquired or ready for use by the year end, it should not be capitalised or depreciated in the current year. A purchase order alone is no basis, so an adjustment should be proposed.

1. ACapitalise it in the current year since the purchase order was placed before year end
2. BCapitalise it in the current year because the invoice is merely a formality
3. CThe asset should not be capitalised and depreciated in the current year if it was not ready for use or acquired by the balance sheet date; the auditor should evidence the date of delivery and installation and propose adjustment if the entry is wrongCorrect
4. DIgnore the matter as the amount involves only a single asset