Question

You are auditing the accounts of Jack Cooks Pty Ltd, a small printing firm in regional Victoria. During the year one of the owners contributed cash and other private assets to the business, with the following general journal bringing them to account in the books:

Dr/Cr	Account	Debit	Credit
DR	Cash	7,800
DR	Motor Vehicle	45,000
DR	Computer	1,500
DR	Printer	1,250
CR	Capital		55,550
	(Contribution by owner)

Required:

Explain in detail one substantive test (including the source document as applicable) for each of the following, in relation to the above journal entry:

1. The existence of the cash;

2. The rights and obligations of the motor vehicle;

3. The existence of the computer;

4. The valuation and allocation of the printer;

5. The valuation and allocation of the capital.

Answer 1

The existence of cash:

• Physically count cash on hand, petty cash and other marketable securities and also confirm with the bank regarding the account balance.

The rights and obligations of the motor vehicle:

• Inspect the invoice, insurance policies, title documents and read the minutes of the directors' Board Meetings.

The existence of the computer:

• Physical Inspection and Verification of the computer and also examination of the supporting documents.

The valuation and allocation of the printer:

• Examine invoices, vouch entries in the fixed assets account, verify the depreciation expense and the accumulated depreciation.

The valuation and allocation of the capital:

• Vouch the entry and the amount contributed, the method of contribution - whether by cash or through bank or in kind and the terms or conditions and the rate of interest on capital.