Vintage Villas Ltd. operates five holiday centers on freehold sites in Kenya. The company’s financial statements for the year ended 30 April 2000 disclose total turnover of 456 million and net profit before taxation of Sh.50,400,000. The following matters have arisen for your audit work on these financial statements:
Costs of brochures and advertising of Sh.15,840,000 relating to the year ended 30 April 2000 for the peak season have been carried forward in the balance sheet as a prepayment.
Bar stocks at one of the holiday centers were not physically counted on 30 April 2000 but were estimated by the bar manager at Sh.840,000 based on the previous physical stocktaking at 31 March 2000 which disclosed a value of Sh.768,000. Sales during the month of April amounted to Sh.1,320,000. The subsequent physical stocktaking took place on 31 May 2000. using the estimated value on 30 April 2000, a review of the trading results for the month of April and May disclosed a gross profit percentage of 60% and 39% respectively, compared with an average of 46% for the other eleven months of the year.
The manger of each holiday center is responsible for paying casual labour employed during the six peak holiday weeks and for the shorter periods at other times of the year. These payments are made in cash and amount to approximately Sh.4,800,000 per center for the year, but no receipts or vouchers are available apart from the weekly lists of payments signed by each manager. However all necessary PAYE and NSSF requirements have been complied with in respect of such payments.
Provisions for liabilities and charges include a provision for future maintenance of Sh.24,000,000 representing one third of the estimated cost of totally renovating all building in the holiday centers. During February each year, one third of the properties on each side is fully renovated.
Required:
Comment on the further considerations required of each of the above matters in order to conclude the audit and to indicate the possible effects on the audit report.
(Total: 20 marks)
