The following scenario relates to questions 1 to 5.
You are the audit manager in the firm of MSD & Co, an audit firm. You are planning the audit of
Cruse Co, which operates as a high street retailer and has 15 shops.
All of the shops are owned by Cruse Co and have always been included in the financial
Statements at cost less depreciation. The shops are depreciated over 50 years. However, you
Know from discussions with management that the company intends to include one of the shops, the flagship store, at a revalued amount rather than cost in the current accounting period. The revalued amount is expected to be materially above the carrying value of the shop. The valuation will be based on a management estimate.
Management has explained that the reason for the revaluation is because the flagship store is located in an area where property prices have risen much more quickly compared to other shop locations They consider the flagship store to be significantly undervalued on the statement of financial position.
Management will not depreciate the revalued amount allocated to the flagship store’s building because they maintain the building to a high standard.
1. In his notes for the audit planning meeting, the audit junior made several statements in relation to the valuation of the shops.
Which TWO of the below statements are correct?