Q.No.27. You are the auditor of Injamam Ltd. During the course of audit for the year ended 31.3.2004 1 answer below »

Q.No.27. You are the auditor of Injamam Ltd. During the course of audit for the year ended 31.3.2004 you come across the following transactions – What is your treatment: 1. The Company has given a loan of Rs. 10,000 to X, a supplier of the company on the security of a life insurance policy of the face value of Rs. 50,000 and whose surrender value as on 31.3. 2004 was Rs. 7,500. The company is in possession of the policy. However, an assignment in favour of Injamam Ltd. has not been registered with LIC. 2. The company recorded on 31.3. 2004 a sale of goods to the tune of Rs. 10,000 to A & Co. Ltd., a sister concern and recognised a profit of Rs. 2,500 for the year-ended 31.3. 2004. On April 1, 2004 a purchase of the goods of the same description amounting to Rs. 10,000 from A & Co. Ltd. was found to be recorded. 3. The company has sold during the year 200 shares of Shoaib Akhtar Ltd., for Rs. 20,000. The cost of shares at the time of acquisition was Rs. 40,000. It is also noted that during 2003-04 Shoaib Akhtar Ltd. had lost 3 out of 4 ships owned by it in a storm near India. There are definite indications that the company might go into liquidation. 4. The company has given Rs. 50,000 to A & Co., a partnership firm very remotely connected with one of its senior employees. A & Co. does not customarily accept deposits. Injamam Ltd. does not owe any obligation in respect of A & Co. The above amount of Rs. 50,000 has been classified as “deposits” in the company’s accounts. 5. One of the directors of the company celebrated the marriage of his daughter during 2004. Two cars of the company had been lent to the director and the petrol bills amounting to Rs. 2,500 have been paid by the company. 6. The company owed Rs. 10,000 to Sachin Tendulkar. It issued equity shares amounting to Rs. 10,000 in cancellation of the above debt.

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