Quality control and auditing, Auditing

Assignment Help:

Research and development

Panorama Ltd manufactures and distributes a wide range of general pharmaceutical products. Selected audited data for the reporting period ended 31 December 2011 are as follows:

Gross profit $17,600,000

Profit before tax 1,700,000

Income tax expense 500,000

Profit for the period 1,200,000

Total assets:

Current 7,300,000

Non-current 11,500,000

The company uses a standard mark-up on cost.

From your audit files, you ascertain that total research and development expenditure for the year amounted to $4,700,000. This amount is substantially higher than in previous years and has eroded the profitability of the company. Mr Paniq, the company's finance director, has asked for your firm's advice on whether it is acceptable accounting practice for the company to carry forward any of this expenditure to a future accounting period.

Your audit files disclose that the main reason for the significant increase in research and development costs was the introduction of a planned 5-year laboratory program to attempt to find an antidote for the common cold. The following items were included in research and development costs for the year.

(a) Costs to test a new tamper-proof dispenser pack for the company's major selling line (20% of sales) of antibiotic capsules - $760,000. The new packs are to be introduced in the 2012 financial year.

(b) Experimental costs to convert a line of headache powders to liquid form - $590,000. The company hopes to phase out the powder form if the tests to convert to the stronger and better handling liquid form prove successful.

(c) Quality control required by stringent company policy and by law on all items of production for the year - $750,000.

(d) Costs of a time and motion study aimed at improving production efficiency by redesigning plant layout of existing equipment - $50,000.

(e) Construction and testing of a new prototype machine for producing hypodermic needles - $200,000. Testing has been successful to date and is nearing completion. Hypodermic needles accounted for 1% of the company's sales in the current year, but it is expected that the company's market share will increase following introduction of this new machine.


Related Discussions:- Quality control and auditing

Audit evidence and documentation, list and explain four factors that influe...

list and explain four factors that influence the auditor''s judgement regarding the sufficiency if the evidence obtain

What method would you use to test an individual account bal., You are audit...

You are auditing the accounts receivable balance of a cable television provider. Individual accounts receivables tend to be similar in amount to each other and cover one or two mon

Examples of specialists, Examples of Specialists Examples of specialis...

Examples of Specialists Examples of specialists or experts whose work may be relied upon include: For valuations such as land and buildings, machinery and plant,

Internal controls, Ask Describe the weaknesses in internal control and reco...

Ask Describe the weaknesses in internal control and recommend improvements in Swan’s procedures for the purchase, receipt, storage and issue of raw materials. Organize your answer

Auditor, Auditor Further point to note is which modern companies can b...

Auditor Further point to note is which modern companies can be exclusively large along with multi-national activities.  So preparing accounts for that a group becomes a widely

Attempts to define true and fair, Attempts to define True and Fair It...

Attempts to define True and Fair It must be concluded that there has been slight attempt precisely to define fair and true. The Companies Act needs an auditor to report in

Assignment , Length: 2000 words Submission method options Alternative submi...

Length: 2000 words Submission method options Alternative submission method Task Question 1 (5%) Case: Battersby and Associates Chartered Accountants is a successful mid-tier ac

Taxation - audit process, Taxation - Audit Process Companies suffer co...

Taxation - Audit Process Companies suffer corporation tax. The Companies Act use that corporation tax payable on the profits of any specific year should be matched against tho

Need for an audit, Need for an Audit Whether you take an example for a...

Need for an Audit Whether you take an example for a modern large liability company, such we can clearly differentiate between those who control those funds the providers of fu

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd