The draft accounts of your client Happy Arena Ltd., a shopping mall for the year...
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Accounting
The draft accounts of your client Happy Arena Ltd., a shopping mall for the year ended 31st December 2016 showed the following:
2016 2015
GHmillion GHmillion
Revenue 84.40 83.60
Profit before tax 5.00 4.40
Total Assets 75.00 46.80
In December 2016, management announced plans to stop the sales of ladies ware from the end of the month. These sales amounted to GH1.4 million for the year ended 31st December 2016 (2015 GH1.6 million). A provision of GH0.6 million has been made at 31st December 2016 for the compensation of redundant employees who are mainly sales girls.
Required:
Comment on the materiality of these two plans.
Note: The following materiality levels are to be used as benchmarks:
Value %
Profit Before Tax 5
Gross Profit - 1
Revenue - 1
Total Assets 1 2
Net Assets 2 5
Profit After Tax 5 12
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