CA Inter P5 · Chapter 2 · Question 9 of 11
For the audit of Aranya Paints Ltd., the auditor selects profit before tax of Rs. 4.8 crore as the benchmark and applies 5% to determine materiality for the financial statements as a whole. Performance materiality is set at 75% of that materiality. What is performance materiality?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rs. 18 lakh
Explanation
Materiality = 5% x Rs. 480 lakh = Rs. 24 lakh. Performance materiality = 75% x Rs. 24 lakh = Rs. 18 lakh. Rs. 24 lakh is overall materiality, Rs. 36 lakh wrongly applies 7.5% to the benchmark, and Rs. 12 lakh applies 50%. SA 320 leaves the percentages to professional judgment; these are given in the question.
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