Sorensen Corporation purchases equipment in 2018 for $200,000. Sorensen has substantial taxable income and desires to minimize this amount to the fullest extent possible. How much can Sorensen deduct

SUMMARY:

A．extended

B．mitigating

C．ostensible

D．unsubstantiated

E．minimal

SUMMARY:

A．extended

B．mitigating

C．ostensible

D．unsubstantiated

E．minimal

There was little, if any, evidence to substantiate the gossip and, , there was little to disprove it.

A．by the same token

B．under the same condition

C．at the same stage

D．for the same purpose

Heraklion Co is a manufacturer of footballs and is a new audit client for your firm. You are an audit supervisor of Spinalonga & Co and are currently preparing for the forthcoming interim and final audit for the year ending 31 October 20X6. You are required to document and assess the sales system, recommend control improvements to deal with a specific fraud issue as well as undertake substantive testing of revenue.

Sales ordering, goods despatched and invoicing

Heraklion Co sells footballs to a range of large and small sports equipment retailers in several countries. Sales are made through a network of sales staff employed by Heraklion Co, but new customer leads are generated through a third party company. Sales staff are responsible for assessing new customers’ creditworthiness and proposing a credit limit which is then authorised by the sales director. The sales staff have monthly sales targets and are able to use their discretion in granting sales discounts up to a maximum of 10%. They then record any discount granted in the customer master data file.

The sales staff visit customer sites personally and orders are completed using a two-part pre-printed order form. One copy is left with the customer and the other copy is retained by the sales person. The sales order number is based on the sales person’s own identification (ID) number.

The company markets itself on being able to despatch all orders within three working days. Once the order is taken, the sales person emails the finance department and warehouse despatch team with the customer ID and the sales order details and from this a pick list is generated. Sequentially numbered goods despatched notes are completed and filed in the warehouse.

Sequentially numbered invoices are generated using the pick lists for quantities and the customer master data file for prices. Standard credit terms for customers are 30 days and on a monthly basis sales invoices which are over 90 days outstanding are notified to the relevant sales person to chase payment directly with the customer.

Payroll fraud

The finance director, Montse Mirabelle, has informed you that a significant fraud took place during the year in the payroll department. A number of fictitious employees were set up on the payroll and wages were paid into one bank account. This bank account belonged to two supervisors, who were married, and were employed by Heraklion Co. One had sole responsibility for setting up new joiners in the payroll system and the other processed and authorised bank transfer requests for wages and supplier payments. These employees no longer work for the company and Montse has asked the audit firm for recommendations on how to improve controls in this area to prevent this type of fraud occurring again. Heraklion Co operates a Human Resources department.

Required:

(a) Describe TWO methods for documenting the sales system, and for each explain ONE advantage and ONE disadvantage of using this method. (6 marks)

(b) Identify and explain SEVEN deficiencies in the sales system of Heraklion Co and provide a recommendation to address each of these deficiencies. Note: Prepare your answer using two columns headed Control deficiency and Control recommendation respectively. (14 marks)

(c) In relation to the payroll fraud, identify and explain THREE controls Heraklion Co should implement to reduce the risk of this type of fraud occurring again and, for each control, describe how it would mitigate the risk. (6 marks)

(d) Describe substantive procedures the auditor should perform. to obtain sufficient and appropriate audit evidence in relation to Heraklion Co’s revenue. (4 marks)

You are the financial manager of Multidrop (Group) a European based company which has subsidiary businesses in North America, Europe, and Singapore. It also has foreign currency balances outstanding with two non-group companies in the UK and Malaysia. Last year the transaction costs of ad-hoc settlements both within the group and with non-group companies were significant and this year you have reached agreement with the non-group companies to enter into a netting agreement to clear indebtedness with the minimum of currency flows. It has been agreed that Multidrop (Europe) will be the principal in the netting arrangement and that all settlements will be made in Euros at the prevailing spot rate.

The summarised list of year end indebtedness is as follows:

Required:

(a) Calculate the inter group and inter-company currency transfers that will be required for settlement by Multidrop (Europe). (12 marks)

(b) Discuss the advantages and disadvantages of netting arrangements with both group and non-group companies. (8 marks)

Manco has been experiencing substantial losses at its furniture making operation which is treated as a separate operating segment. The company’s year end is 30 September. At a meeting on 1 July 2010 the directors decided to close down the furniture making operation on 31 January 2011 and then dispose of its non-current assets on a piecemeal basis. Affected employees and customers were informed of the decision and a press announcement was made immediately after the meeting. The directors have obtained the following information in relation to the closure of the operation:

(i) On 1 July 2010, the factory had a carrying amount of $3·6 million and is expected to be sold for net proceeds of $5 million. On the same date the plant had a carrying amount of $2·8 million, but it is anticipated that it will only realise net proceeds of $500,000.

(ii) Of the employees affected by the closure, the majority will be made redundant at cost of $750,000, the remainder will be retrained at a cost of $200,000 and given work in one of the company’s other operations.

(iii) Trading losses from 1 July to 30 September 2010 are expected to be $600,000 and from this date to the closure on 31 January 2011 a further $1 million of trading losses are expected.

Required:

Explain how the decision to close the furniture making operation should be treated in Manco’s fi nancial statements for the years ending 30 September 2010 and 2011. Your answer should quantify the amounts involved.

It can be inferred from the passage that the minimal basis for a complaint to the International Trade Commission is

A．A foreign competitor has received a subsidy from a foreign government

B．A foreign competitor has substantially increased the volume of products shipped to the United States

C．A foreign competitor is selling products in the United States at less than fair value

D．The company requesting import relief has been injured by the sale of imports in the United States

It can be inferred from the passage that the minimal basis for a complaint to the International Trade Commission is which of the following?

A．A foreign competitor has received a subsidy from a foreign government.

B．A foreign competitor has substantially increased the volume of products shipped to the United States.

C．A foreign competitor is selling products in the United States at less than fair value.

D．The company requesting import relief has been injured by the sale of imports in the United States.

In can be inferred from the passage that the minimal basis for a complaint to the International Trade Commission is which of the following?

A．A foreign competitor has received a subsidy from a foreign government.

B．A foreign competitor has substantially increased the volume of products shipped to the United States.

C．A foreign competitor is selling products in the United States at less than fair value.

D．The company requesting import relief has been injured by the sale of imports in the United States.

It can be inferred from the passage that the minimal basis for a complaint to the International Trade Commission is which of the following?

A．A foreign competitor has received a subsidy from a foreign government.

B．A foreign competitor has substantially increased the volume of products shipped to the United States.

C．A foreign competitor is selling products in the United States at less than fair market value.

D．The company requesting import relief has been injured by the sale of imports in the United States.

E．The company requesting import relief has been barred from exporting products to the country of its foreign competitor.