d Which of the following accounts should be reviewed by the

d. Which of the following accounts should be reviewed by the auditors to gain reasonable assurance that additions to property, plant, and equipment are not understated? (1) Depreciation. (2) Accounts Payable. (3) Cash. (4) Repairs.

Solution

Correct Answer (4) Repairs

Reason

Sometimes there may be errors in analyzing the type of transaction as to whether it is of capital nature or revenue nature. An amount which is required to be added to assets accounts and by mistake is debited to repairs will understate the value of property, plant, and equipment. The Repairs accounts need to be scrutinized properly and every debits must be checked to see whether they are appropriate or not.