You are an auditor on a client that has been a long-time customer of your firm.

Question

You are an auditor on a client that has been a long-time customer of your firm. As a first year staff member you are assigned to audit the PPE sections of the books. You notice that the company disposed of a brand new dump truck for a used, 2009 4-door sedan. Based on your math, the company lost about $15,000 on the trade. After inquiring further, the accounting manager tells you that the owner traded the truck to his brother's landscaping company for the car as a favor since the landscaping company was undergoing financial hardships. Your client's company recorded the removal of the truck from the PPE account as a total scrap, and the owner of your client company kept the car for himself. He never considered it an asset of his company. Write a letter to the CFO explaining how he should properly record the transaction and why this is required. For the transaction, assume the Dump truck was $45,000 and the 4-door sedan was worth $30,000 (it was a nice car).

Explanation / Answer

HE should have followed this

Drwaings 45000

Dump Truck ( Net) 45000

This transaction should be treated one as drawings because owner never treated car as a business asset. because of this we will not record loss of 15000 in books rather we will record complte truck as a drawing transaction.

This transaction was not for any purpose of business but for personal consideration

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