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1) The document provides scenarios related to financial transactions and asks to determine the impact on assets, liabilities, retained earnings, and ratios. 2) It then describes mistakes made by an auditor's client such as fake entries and omitted entries, and asks to determine if these mistakes overstate, understate, or have no impact on income and balance sheet totals. 3) Key impacts include overstating or understating assets, liabilities, income and retained earnings from errors like recording expenses as assets or omitting depreciation entries.

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Hassaan Nasir
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43 views4 pages

Q4 Solved

1) The document provides scenarios related to financial transactions and asks to determine the impact on assets, liabilities, retained earnings, and ratios. 2) It then describes mistakes made by an auditor's client such as fake entries and omitted entries, and asks to determine if these mistakes overstate, understate, or have no impact on income and balance sheet totals. 3) Key impacts include overstating or understating assets, liabilities, income and retained earnings from errors like recording expenses as assets or omitting depreciation entries.

Uploaded by

Hassaan Nasir
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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IBA School of Business – Quiz 19092022 Your Name: ______________________________

Financial Accounting and Information Systems

Assumed Scenario
Complete the following table for all the impacts by putting Inc, Dec, NC, CNBD

Impact [ Increase / Decrease / No Change (NC) /


Cannot be Determined without amounts (CNBD)
Suggestion On On On Retained On Debt to
Assets Liabilities Earnings Total Asset
Ratio
Investing more capital into business Inc NC NC Dec

Receiving payment from customers against Inc & NC NC NC


accounts receivables Dec (NC)

Purchasing new equipment on cash Inc & NC NC NC


Dec (NC)
Raising New short-term loan Inc Inc NC CNBD / Inc*

Recovering some long term loans given to staff Inc & NC NC NC


Dec (NC)
Recording entry for consulting services received NC Inc Dec Inc
but not yet paid

Recording adjusting entry for providing of NC Dec Inc Dec


services against advance received from a
customer
* assuming positive RE
IBA School of Business – Quiz 19092022 Your Name: ______________________________
Financial Accounting and Information Systems

Assumed Scenario
Complete the following table for all the impacts by putting Inc, Dec, NC, CNBD

Impact [ Increase / Decrease / No Change (NC) /


Cannot be Determined without amounts (CNBD)
Suggestion On On On Retained On Current
Assets Liabilities Earnings Ratio
Paying off some non-current liabilities Dec Dec NC Dec

Paying vendors against accounts payables Dec Dec NC CNBD

Purchasing new machinery on credit Inc Inc NC Dec*

Raising New long-term loan Inc Inc NC Inc

Providing short term loans to staff Inc & NC NC NC


Dec (NC)
Recording receipt of 12 months rent in advance Inc Inc NC CNBD
from a tenant
Recording adjusting entry for usage of prepaid Dec NC Dec Dec
Takaful
* always assumed current in the absence of any information
IBA School of Business – Quiz 19092022 Your Name: ______________________________
Financial Accounting and Information Systems

After checking all records and completing the audit, an Auditor found that his client company has executed
some fake accounting entries and has omitted to record some genuine entries towards the fraud. The
mistakes are highlighted for easy understanding. Workout the impact of each of the mistakes on the
corresponding items.

Impact of Mistakes / Frauds


Overstated / Understated / No Impact

Fake Accounting by the company Income for the period Balance Sheet Total

An adjusting entry for prepaid rent Overstated Overstated


is recorded by half amount than
the actual

Omitting to record adjusting entry Overstated No Impact


for accrued salaries due not yet
paid

Recording cash payment for rent Overstated No Impact


expense as a Drawing

Recording fake expense on credit Understated No Impact


(as payable)

Recording payment for electricity Overstated Overstated


expense as a security deposit

Recording loan given to staff as an Understated Understated


expense
IBA School of Business – Quiz 19092022 Your Name: ______________________________
Financial Accounting and Information Systems

After checking all records and completing the audit, an Auditor found that his client company has executed
some fake accounting entries and has omitted to record some genuine entries towards the fraud. The
mistakes are highlighted for easy understanding. Workout the impact of each of the mistakes on the
corresponding items.

Impact of Mistakes / Frauds


Overstated / Understated / No Impact

Fake Accounting by the company Income for the period Balance Sheet Total

An adjusting entry for prepaid rent Understated Understated


is recorded by double amount

Omitting to record depreciation on Overstated Overstated


an asset

Recording cash withdrawal for Understated No Impact


personal use as an expense

Recording fake credit revenue (as Overstated Overstated


receivable)

Recording receipt of security Overstated No Impact


deposit from a customer as a
revenue
Recording purchase of office No Impact Understated
equipment on credit as purchase of
office equipment on cash

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