auditing

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akkkkkkkkkkkkkkkkkkk (Querist)
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08 August 2010 how will u as an auditor treat the following?
1-receipt of substantial amount by way of damages from supplier in respect of inferior quality of raw material received and consumed during the year under audit?
2- finished goods were valued at cost of production including administration overhead.
3-financial expenses and advances paid to contractor during the period of construction.
4-know how relating to manufacturing process paid rs. 50 lakhs and know how relating to drawing of plant and machinery amounting tors. 100 lakhs.

CA SMR

CA SMR (Expert)
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09 August 2010 1. Reduce the amount from purchases
2.As per AS 5 cost of finished goods comprise of cost of purchase,cost of conversion and other cost incurred to bring the goods in their current location.Accordingly adding admin overhead may be relevant.
3.I would refer to AS 7."When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. An expected loss on the construction contract should be recognised as an expense immediately."
4.This amount can be shown as deferred Expenses and amortised over a period justified by the management which you may need to understand and agree to.