Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

State with reasons your opinion in regard to treatment of the following transactions appearing in the books of account.
i. Travelling expense incurred directors for acquisition of plant and machineries.
ii. Non-technical staffs’ salary during the period of installation of plant and machinery.

i. This is indirect cost directly related to that plant & machinery acquired. Thus, these expenses should be capitalized as part of the cost.
ii. Such expenses incidental to installation should be apportioned over related plant & machinery in an equitable manner. If such expenses are not related to the installation, such expenses should be treated as deferred revenue expenses to be written off within a reasonable period after the commencement of production.

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