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ACC311 Assignment No 2 Spring 2012 solution

A large engineering coompany has 112 manufacturring plants alll over the coountry. Its prooduction/maanufacturing process is capital intenssive and comppany has differrent types of pplants. Preparatioon of annul deetailed budgett of assets esppecially non-cuurrent assets iss the responsiibility of finannce manager. Thereafterr, this final buudget is sent tto the Board of directors foor final approoval. This buddget is approvved for more than five yyears by the bboard of direcctors after connsulting with tthe audit commmittee. Finallly, the approvved budget is fed into thhe computerizzed system witth proper issuuing authority.

At time, pplant is receiveed by the Commpany; a pre- nnumbered notte is preparedd with differennt copies. Onee copy is sent to the acccounting department so thhat they coulld update nonn-current asseets and one ccopy is sent to the audit departmennt. In the neext step, plantt is thoroughlly inspected bby the qualifieed persons annd is tested foor operation. Productioon departmentt prepares ann operational efficiency cerrtificate for tthe accountingg departmentt. Then Pre­numberedd purchase invvoice and the ooperational efficiency certifficate are checcked when theey received.

When thee purchase of plant is enterred into the computerized purchasing syystem, a soft ccopy of non-ccurrent asset register iss updated. Noo one can acccess to this nnon-current assets register from the acccounting depaartment. On different ddates during the year, the non-current assets registerr is comparedd to the actuaal plant by ann authorized person whho compares iidentification nnumber of thee machine in rregister and allso engraved oon the plant.

The internnal audit depaartment also exxamines on a sample basis from requisitiion of machinnery to operattion i.e. from preparatioon of budget to entry in thhe assets regiister. A sampple of assets eentries from non-current assets is also comparedd with machineery on workshhop floor by thhe internal auudit staff.

Pinpoint FIVE strengths of thhe Company ’s control eenvironmennt with referrence to non- current assets annd explain the impact oon control risk. 

Solution:

A company’s long-term investments, in the case that the full value will not be realized within the accounting year. Noncurrent assets are capitalized rather than expensed, meaning that the company allocates the cost of the asset over the number of years for which the asset will be in use, instead of allocating the entire cost to the accounting year in which the asset was purchased.

Examples of noncurrent assets include investments in another company, intangible assets such as goodwill, brand recognition and intellectual property, and property, plant and equipment. Noncurrent assets appear on the company’s balance sheet

All non-current physical assets, if appropriate, are to be replaced when;

    • They become obsolete
    • The cost of maintenance exceeds the depreciated value of the asset; or
    • There is not a material amount of effective service life remaining.
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