(b) A sale of industrial equipment to Deakin Co in May 2005 resulted in a loss o

(b) A sale of industrial equipment to Deakin Co in May 2005 resulted in a loss on disposal of $0·3 million that has

been separately disclosed on the face of the income statement. The equipment cost $1·2 million when it was

purchased in April 1996 and was being depreciated on a straight-line basis over 20 years. (6 marks)

Required:

For each of the above issues:

(i) comment on the matters that you should consider; and

(ii) state the audit evidence that you should expect to find,

in undertaking your review of the audit working papers and financial statements of Keffler Co for the year ended

31 March 2006.

NOTE: The mark allocation is shown against each of the three issues.

(b) Sale of industrial equipment(i) Matters■ The industrial equipment was in use for nine years (from April 1996) and would have had a carrying value of$660,000 at 31 March 2005 (11/20 × $1·2m – assuming nil residual value and a full year’s depreciation c