Tag (SQ): Inventory Valuation

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FR – L2 – Q71 – Presentation of Financial Statements

Prepare Zestful Ltd's statement of profit or loss and financial position for 20X9, incorporating inventory adjustments, depreciation, tax, and joint operation.

Question

The following trial balance relates to Zestful Ltd as at 31st December 20X9.

Description	GH₵’000	GH₵’000
Revenue		213,800
Cost of sales	143,800
Operating expenses	22,400
Trade receivables	13,500
Bank		900
Closing inventories – 31st December 20X9 (note (i))	10,500
Interest expenses (note (iii))	5,000
Rental income from investment property		1,200
Plant and equipment – cost (note (ii))	36,000
Land and building – at valuation (note (ii))	63,000
Accumulated depreciation		16,800
Investment property – valuation 1st January 20X9 (note (ii))	16,000
Trade payables		11,800
Joint arrangement (note (v))	8,000
Deferred tax (note (iv))		5,200
Ordinary shares of 25p each		20,000
10% Redeemable preference shares of GH₵1 each		10,000
Retained earnings – 1st January 20X9		17,500
Revaluation surplus (note (ii))		21,000
Total	318,000	318,000

The following additional information is relevant:
(i) An inventory count on 31st December 20X9 listed goods with a cost of GH₵10.5 million. This includes some damaged goods that had cost GH₵800,000. These would require remedial work costing GH₵450,000 before they could actually be sold for an estimated GH₵950,000.
(ii) Non-current assets:

Plant: All plant, including that of the joint operation (note v), is depreciated at 12.5% on reducing balance basis.
Land and building: The land and building were revalued at GH₵15 million and GH₵48 million respectively on 1st January 20X9 creating a GH₵21 million revaluation surplus. At this date the building had a remaining life of 15 years. Depreciation policy is on a straight-line basis. Zestful Ltd does not make a transfer to realized profits in respect of excess depreciation. Depreciation on both the building and the plant should be charged to the cost of sales.
Investment property: On 31st December 20X9 a qualified surveyor valued the investment property at GH₵13.5 million. Zestful Ltd uses the fair value model in IAS 40 Investment Property to measure its investment property.
(iii) Interest expenses include interest on loan notes and an ordinary dividend of 4p per share that was paid in June 20X9.
(iv) The directors have estimated the provision for income tax for the year ended 31st December 20X9 at GH₵8 million. The deferred tax provision ended 31st December 20X9 is to be adjusted (through the profit or loss) to reflect the tax base of the company’s net assets is GH₵12 million less than their carrying amounts. The rate of tax is 30%.
(v) On 1 January 20X9 Zestful Ltd entered into a joint arrangement with other entities. Each venturer contributes their own assets and is responsible for their own expenses including depreciation assets of the joint arrangement. Zestful Ltd is entitled to 40% of the joint venture’s total turnover. The joint arrangement is not a separate entity and is regarded as a joint operation.
Details of Zestful Ltd joint venture transactions are:

Description	GH₵’000
Plant and equipment at cost	12,000
Share of joint venture turnover (40% of total turnover)	8,000
Related joint venture cost of sales excluding depreciation	(5,000)
Trade receivables	1,500
Trade payables	(2,500)

Required:
Prepare a statement of profit or loss for the year ended 31 December 20X9 and a statement of financial position as at that date.

Answer

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Tags: Deferred Tax, Depreciation, Fair Value, Financial Statements, Inventory Valuation, Investment property, Joint Operations, Profit or Loss, Statement of Financial Position
Level: Level 2

Topic: Fair Value Measurement (IFRS 13)

FR – L2 – Q69 – Presentation of Financial Statements

Prepare Nova Bekasi Ltd's statement of profit or loss and financial position for 20X5 per IAS 1, considering inventory, depreciation, tax, and goodwill impairment.

Question

NOVA BEKASI LIMITED
The list of balances of Nova Bekasi Limited shows the following balances at 31 December 20X5.

	Dr GH₵’000	Cr GH₵’000
Share capital (600,000 shares)		320
General reserve		20
Accumulated profit 1 January 20X5		50
Inventory (goods for resale) at 1 January 20X5	60
Revenue		1,000
Purchases	540
Purchases returns		26
Sales returns	28
Carriage outwards	28
Warehouse wages	80
Sales representatives salaries	60
Administrative wages	40
Warehouse plant and equipment – cost	126
Accumulated depreciation – 1 January 20X5		50
Delivery vehicle hire	20
Goodwill	100
Distribution expenses	10
Administrative expenses	30
Directors’ salaries (charge to administrative expenses)	30
Rental income		16
Trade receivables	330
Cash at bank	60
Trade payables		60
	1,542	1,542

Additional information
(1) Inventory (goods for resale) at 31 December 20X5 amounted to GH₵100,000.
(2) Annual depreciation on warehouse plant and equipment of GH₵32,000 should be provided.
(3) Income tax for 20X5 should be taken as GH₵50,000.
(4) The recoverable amount of goodwill was only GH₵90,000.

Required
Prepare the company’s statement of profit or loss for the year to 31 December 20X5 and a statement of financial position at that date in accordance with IAS 1 Presentation of Financial Statements.

Answer

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Tags: Depreciation, Financial Reporting, Financial Statements, Goodwill Impairment, IAS 1, Income Tax, Inventory Valuation, Statement of Financial Position, Statement of profit or loss, Trial Balance
Level: Level 2

Topic: Presentation of Financial Statements, Presentation of Financial Statements (IAS 1)

FR – L2 – Q67 – Presentation of Financial Statements

Prepare Wenchi Exports' profit/loss statement and financial position for 20X4 using trial balance, with adjustments for inventory, patents, revaluation, bad debts, and tax.

Question

The trial balance of Wenchi Exports Limited at 31 December 20X4 is as follows.

	GH₵ in million
	Dr	Cr
Patent rights	60
Work-in-progress, 1 January 20X4	125
Buildings at cost	300
Ordinary share capital		600
Revenue		1,740
Staff costs	260
Accumulated depreciation on buildings, 1 January 20X4		60
Inventories of finished games, 1 January 20X4	155
Consultancy fees	44
Directors’ salaries	360
Computers at cost	50
Accumulated depreciation on computers, 1 January 20X4		20
Dividends paid	125
Cash	440
Receivables	420
Trade payables		294
Sundry expenses	94
Accumulated profits, 1 January 20X4		279
	2,633	2,633

The following information is also relevant.
(1) Closing inventories of finished games are valued at GH₵180 million. Work in progress has increased to GH₵140 million.
(2) The patent rights relate to a computer program with a three-year lifespan.
(3) On 1 January 20X4 buildings were revalued to GH₵360 million. This has not yet been reflected in the accounts. Computers are depreciated over five years. Buildings are now to be depreciated over 30 years.
(4) An allowance for bad debts (irrecoverable debts) of 5% is to be created.
(5) There is an estimated bill for current tax of GH₵120 million which has not yet been recognised.

Required
Prepare a statement of profit or loss (analysing expenses by nature) for the year ended 31 December 20X4 and a statement of financial position as at that date.

Answer

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Tags: Amortisation, Bad Debts, Depreciation, Inventory Valuation, Revaluation, Statement of Financial Position, Statement of profit or loss, Tax Provision, Trial Balance
Level: Level 2

Topic: Presentation of Financial Statements (IAS 1)

FR – L2 – Q21 – Property, Plant, and Equipment

Calculate machinery costs, premises costs, depreciation, disposal loss, and revaluation reserve for various transactions.

Question

21 SUNDRY QUESTIONS

1 A company purchased some heavy machinery. The invoice for the machinery showed the following items:

GH₵000
Cost of machinery	46,000
Cost of delivery	900
Cost of 12-month warranty on the machinery	1,600
Total amount payable	48,500

In addition, the company incurred GH₵3.4 million in making modifications to its factory so that the heavy machinery could be installed.
What should be the cost of the machinery in the company’s machinery account in the ledger?

2 A business acquired new premises at a cost of GH₵400 million on 1 January 20X5. In the period to the year end of 31 March 20X5 the following further costs were incurred.

	GH₵000
Costs of initial adaptation of the building	12,000
Legal costs relating to the purchase	2,500
Monthly cleaning contract	3,400
Cost of air conditioning unit necessary for machinery to be used	2,800
Cost of machinery	12,300

What amount should appear as the cost of premises in the company’s statement of financial position at 31 March 20X5?

3 The plant and machinery account for a company for the year ended 30 June 20X5 is as follows.

Plant and machinery account

20X4		GH₵000		GH₵000
1 July	Balance	960,000	31 March	Transfer to disposal account
31 Dec	Cash: purchase of machines	200,000	30 June	Balance
		1,160,000

The company’s policy is to charge depreciation on plant and machinery at 25% each year on the straight-line basis, with proportionate charges in the year of acquisition and the year of disposal. None of the assets held at 1 July 20X4 was more than three years old.
What is the charge for depreciation of plant and machinery for the year ended 30 June 20X5?

4 A motor car was purchased in May 20X2 for GH₵7.8 million. The accounting policy is depreciation at 20% straight line on the cost of the assets in use at the year end. The car was traded in for a replacement vehicle purchased in July 20X5 with the agreed part exchange value being GH₵2.4 million. The company’s year-end is 31 December.
What was the profit or loss on disposal?

5 A business purchased some land and buildings on 1 January 20X1 for GH₵800 million (land GH₵250 million and buildings GH₵550 million). The buildings are to be depreciated over a period of 50 years.
On 1 January 20X5 the land and buildings were revalued to GH₵1,500 million (land GH₵400 million and buildings GH₵1,100 million). At this date the buildings were believed to have a remaining useful life of 40 years.
What is the original depreciation charge for the buildings and the revised charge from 1 January 20X5?

6 A business purchased land for GH₵250 million and buildings for GH₵400 million on 1 January 20X1. The buildings were to be depreciated over a period of 50 years. On 1 January 20X5 the land was revalued to GH₵520 million and the buildings were revalued at GH₵750 million.
What amount is to be taken to the revaluation reserve on 1 January 20X5?

Answer

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Tags: and Equipment, Depreciation, Inventory Valuation, Machinery Costs, Plant, Property, Revaluation
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FA – L1 – Q88 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for XY Healthcare Co Sports and Social Club for 20X9, including subscriptions and inventory adjustments.

Question

You have agreed to take over the role of bookkeeper for the XY Healthcare Co Sports and Social Club.
The summarised statement of financial position on 31 December 20X8 as prepared by the previous bookkeeper contained the following items.

Assets	GH₵
Heating oil for clubhouse	700
Shop and cafe inventories	5,000
New sportswear, for sale, at cost	4,000
Used sportswear, for hire, at valuation	1,000
Equipment for groundsman
Cost	10,000
Depreciation	(2,000)
Subscriptions due	200
Bank
Current account	800
Deposit account	20,000
Capital and liabilities	GH₵
Accumulated fund	29,200
Payables
Shop and cafe inventories	600
Sportswear	900

The bank account summary for the year to 31 December 20X9 contained the following items.

Receipts	GH₵
Subscriptions	11,000
Bankings
Shop and cafe	10,000
Sale of sportswear	6,000
Hire of sportswear	4,500
Interest on deposit account	400

Payments	GH₵
Rent and repairs of clubhouse	6,000
Heating oil	4,000
Sportswear	4,500
Grounds person	9,000
Shop and cafe purchases	9,000
Transfer to deposit account	3,000

You discover that the subscriptions due figure as at 31 December 20X8 was arrived at as follows.

Subscriptions due	GH₵
Subscriptions unpaid for 20X7	10
Subscriptions unpaid for 20X8	230
Subscriptions paid for 20X9	(40)

Corresponding figures at 31 December 20X9 are:

Subscriptions due	GH₵
Subscriptions unpaid for 20X7	10
Subscriptions unpaid for 20X8	20
Subscriptions unpaid for 20X9	90
Subscriptions paid for 20X0	(200)

Subscriptions due for more than 12 months should be written off with effect from 1 January 20X9.

Asset balances at 31 December 20X9 include:

Assets	GH₵
Heating oil for clubhouse	700
Shop and cafe inventories	5,000
New sportswear, for sale, at cost	4,000
Used sportswear, for hire, at valuation	1,000
Closing payables at 31 December 20X9 are for:
Shop and cafe inventories	800
Sportswear	450
Heating oil for clubhouse	200

Two thirds of the sportswear purchases made in 20X9 had been added to inventory of new sportswear in the figures given in the list of assets above, and one third had been added directly to the inventory of used sportswear for hire.
Half of the resulting ‘new sportswear for sale at cost’ at 31 December 20X9 is actually over two years old. You decide, with effect from 31 December 20X9, to transfer these older items into the inventory of used sportswear, at a valuation of 25% of their original cost.
No cash balances are held at 31 December 20X8 or 31 December 20X9. The equipment for the grounds person is to be depreciated at 10% per annum, on cost.

Required:
Prepare the income and expenditure account and statement of financial position for the XY Healthcare Co Sports and Social Club for 20X9.

Answer

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Topic: Preparation of not-for-profit accounts

FA – L1 – Q52 – Control accounts and account reconciliations

Adjust sales/purchase ledger control accounts and reconcile with individual ledger balances for Kofi Enterprises.

Question

Kofi Enterprises maintains accounts on a fully integrated computerised accounting system which produces control accounts as an integral part of the DOUBLE ENTRY system. At the end of each month individual sales and PURCHASE ledger balances are reconciled automatically to the respective control accounts as a pre-programmed control check.

Unfortunately Kofi was taken ill in the middle of August and his assistant input a number of entries without the correct integration codes. Consequently the system has been unable to reconcile the control accounts at the end of that month. The assistant has manually extracted the individual ledger balances, and the net totals at 31 August are as follows.

Purchase ledger	Sales ledger
GH¢3,556	GH¢8,946

The assistant has also manually produced draft accounts for the six months to 31 August and provides you with the following abridged trial balance.

	GH¢	GH¢
Sales ledger control account	8,979
Purchase ledger control account		7,496
Net profit per draft accounts		4,322
Sundry balances (net)	2,839
	11,818	11,818

You have checked through the accounting records and discovered the following discrepancies.
(1) The total for the PURCHASES day book input total for August has been incorrectly shown as GH¢6,241 following a manual override. The total should have been GH¢2,641.
(2) An old debit balance of GH¢28 in the PURCHASE ledger had been written off during August as bad. You discover that no ENTRY had been input other than in the individual supplier’s ledger account.
(3) A payment of GH¢260 on 14 August relating to the payment of a July PURCHASES invoice had been wrongly input in the cash account as wages.
(4) During the month of August there had been a mix-up over goods supplied to a CUSTOMER, Kwame. The goods were invoiced for GH¢62, despatched to Kwame and correctly entered in the system on 5 August. Several items turned out to be defective and were returned by Kwame on 28 August. These goods, originally costing GH¢14, were included in the original invoice of GH¢62 at an amount of GH¢17. No ENTRY was made in the books as a result of the return of the goods but they were manually input into the INVENTORY account at GH¢17. Owing to their damaged state their net realisable value is estimated to be GH¢5.
(5) Kofi has received discounts during the month amounting to GH¢280. However, these have only been manually input to the individual suppliers’ accounts.
(6) Certain discrepancies in the print-out of balances at 31 August have come to light, suggesting a software error might also have occurred. You discover that
(i) debit balances on the sales ledger of GH¢54 and GH¢69 respectively had been completely omitted from the listing
(ii) a CREDIT balance on the PURCHASE ledger of GH¢71 had been listed as a debit balance of GH¢17
(iii) the total of debit entries on Adwoa’s account in the sales ledger had been overcast by GH¢90.

Required
(a) Adjust the sales and PURCHASE ledger control accounts and show the reconciliation of the closing balances with the aggregate of the individual balances extracted from the PURCHASE and sales ledgers.

(b) Compute a revised net profit for the six month period to 31 August.

Answer

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Tags: Bad Debts, Discounts, Error Correction, Financial Statements, Inventory Valuation, Ledger adjustments, Misclassification, Net profit
Level: Level 1

Topic: Correction of Errors

MA – L2 – Q25 – Advanced variance analysis

Calculate actual quantity purchased and cost of materials X and Y, including variances, for VRS Limited.

Question

VRS Limited has the following data for a particular period:

Standard consumption quantities:

Material X: 50,000 units × 6 kg = 300,000 kg
Material Y: 50,000 units × 3 kg = 150,000 kg

Adverse quantity variance (quantity used in excess of standard usage):

Material X: 5,000 kg
Material Y: 5,000 kg

Actual quantity used:

Material X: 300,000 kg + 5,000 kg = 305,000 kg
Material Y: 150,000 kg + 5,000 kg = 155,000 kg

Inventory data:

Closing inventory:
- Material X: 300,000 kg × 20/365 = 16,438 kg
- Material Y: 150,000 kg × 20/365 = 8,219 kg
Opening inventory:
- Material X: 300,000 kg × 25/365 = 20,548 kg
- Material Y: 150,000 kg × 25/365 = 10,274 kg

Actual cost data:

Material X: GH₵150,000 ÷ GH₵30 = 5,000 kg (used to calculate actual quantity used)
Standard cost per kilo:
- Material X: GH₵50
- Material Y: GH₵30

Required:
(a) Calculate:

Actual quantity purchased for Materials X and Y.
Actual cost of purchase for Materials X and Y, including price variance and percentage saved on standard rate.
VRS Limited has the following data for a particular period:

Labour rate variance data:
- Actual hours: 168,000
- Standard rates:
  - 3/7 of hours at GH₵150 per hour
  - 4/7 of hours at GH₵100 per hour
- Rate variance: 10% and 5% (Adverse)
Required:
(b) Calculate the labour rate variance and any relevant overhead variances.

Answer

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Tags: Cost analysis, Inventory Valuation, Material Price Variance, Material Usage Variance, Standard Costing
Level: Level 2

Topic: Advanced Variance Analysis

AA – L2 – Q72 – Inventory Valuation

Discuss amendment need for inventory valuation and impact on auditor's report if unresolved for Mega Construct.

Question

Mega Construct is a listed construction company with an annual revenue of GH₵350m. Mega Construct’s draft statement of profit or loss shows a profit before tax for the year ended December 31, 2008 of GH₵40m.
Mega Construct’s audit firm is conducting an audit. This is the first audit of Mega Construct that this audit firm has conducted. An enquiry to the previous audit firm revealed no reasons for concern. On completing audit work at the company’s premises, the audit senior drafts a memo, extracts from which are reproduced below:

(a) Inventory valuation
Inventories include GH₵7m, at cost, for scrap rubber from used car tyres. This material is widely used as a road surface in other countries. Contracts for road building with this country’s National Road Authority, the state authority for road construction, do not currently permit the use of this material. However, the matter was known to be under review and on being offered a special purchase of this material, Mega Construct speculated on a favourable outcome of this review and purchased the material. In February 2009, shortly before the financial statements were approved by the directors, the National Road Authority reported that it would not, currently, accept the use of this material. If used on non-National Road Authority contracts the material’s net realisable value would not exceed GH₵2m.
The finance director maintains that the issue of the National Road Authority report was a non-adjusting event after the reporting period. The write down of the inventory should, therefore, be reflected in the next period’s financial statements.

Required:
Discuss whether the financial statements require amendment and describe the impact on the auditor’s report if the issue remains unresolved.

(b) Depreciation
During the year ended December 31, 2005 the company purchased two computer controlled earth movers at a cost of GH₵2,500,000 each and a further two at the same price during the year ended December 31, 2006. Depreciation has been provided at 10% straight line, the same basis as it previously depreciated conventional earth movers. This year, 2008, the company has decided that improvements in technology made it worthwhile scrapping their first two computer controlled earth movers and replacing them with the latest model at a cost of GH₵6,000,000 each. The company provides a full year’s depreciation charge in the year of acquisition and none in the year of disposal.
The company’s chief engineer tells you that technology is developing so rapidly it appears likely they will continue to replace these machines every five years. In spite of this the finance director claims that the depreciation rate of 10% is in line with the industry standard and reflects the physical life of the machines. He urges that continued improvements in technology cannot be foreseen and that there is no justification for increasing depreciation to 20% because of the possibility of technological obsolescence.

Required:
Discuss whether the financial statements require amendment and describe the impact on the auditor’s report if the issue remains unresolved.

(c) Contingent liability
The company is being sued for GH₵50m by the National Road Authority for defective work on a recently completed road. The company maintains that it met the National Road Authority’s specification and it is the Authority’s engineers who are at fault in drawing up the specification. Mega Construct maintains that it has no case to answer, that the possibility of loss is remote and that the claim need not be disclosed as a contingent liability. An investigative journalist has recently published an article suggesting that other roads constructed by the company exhibit similar faults. The managing director has admitted that the company’s road building techniques are under investigation by the National Road Authority. If the company were to lose the case its future going concern would be threatened. No disclosure has been made in the financial statements.

Required:
For the following issue, discuss whether the financial statements require amendment and describe the impact on the auditor’s report if the issue remains unresolved.

Answer

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Tags: Audit opinion, Audit Procedures, Financial Statements, IAS 2, Inventory Valuation, Material Misstatement, Qualified Opinion
Level: Level 2

Topic: Audit of Financial Statements

AAA – L3 – Q45 – Forensic auditing

Investigate Accra Engineering Co's losses, focusing on inventory valuation, material consumption, and potential fraud.

Question

You have been asked to carry out an investigation by the management of Dominic Co. One of the company’s subsidiaries, Accra Engineering Co, has been making losses for the past year. Dominic’s management is concerned about the accuracy of Accra Engineering’s most recent quarter’s management accounts.
The summarised statements of profit or loss for the last three quarters are as follows:

Quarter to	30 June 20X8	31 March 20X8	31 December 20X7
	C000	C000	C000
Revenue	429	334	343
Opening inventory	180	163	203
Materials	318	235	240
Direct wages	62	54	74
	560	452	517
Less: Closing inventory	(162)	(180)	(163)
Cost of sales	398	272	354
Gross profit	31	62	(11)
Less: Overheads	(63)	(75)	(82)
Net loss	(32)	(13)	(93)
Gross profit (%)	7.2%	18.6%	(3.2)%
Materials (% of revenue)	74.1%	70.0%	70.0%
Labour (% of revenue)	14.5%	16.2%	21.6%

Dominic’s management board believes that the high material consumption as a percentage of revenue for the quarter to 30 June 20X8 is due to one or more of the following factors:
(1) under-counting or under-valuation of closing inventory;
(2) excessive consumption or wastage of materials;
(3) material being stolen by employees or other individuals.

Accra Engineering has a small number of large customers and manufactures its products to each customer’s specification. The selling price of the product is determined by:
(1) estimating the cost of materials;
(2) estimating the labour cost;
(3) adding a mark-up to cover overheads and provide a normal profit.

The estimated costs are not compared with actual costs. Although it is possible to analyse purchase invoices for materials between customers’ orders this analysis has not been done.
A physical inventory count is carried out at the end of each quarter. Items of inventory are entered on inventory sheets and valued manually. The company does not maintain perpetual inventory records and a full physical count is to be carried out at the financial year end, 30 September 20X8.
The direct labour cost included in the inventory valuation is small and should be assumed to be constant at the end of each quarter. Historically, the cost of materials consumed has been about 70% of revenue.
The management accounts to 31 March 20X8 are to be assumed to be correct.
Required
(a) Define ‘forensic auditing’ and describe its application to fraud investigations. (5 marks)
(b) Identify and describe the matters that you should consider and the procedures you should carry out in order to plan an investigation of Accra Engineering Co’s losses. (10 marks)
(c) (i) Explain the matters you should consider to determine whether closing inventory at 30 June 20X8 is undervalued; and (ii) Describe the tests you should plan to perform to quantify the amount of any undervaluation.
(d) (i) Identify and explain the possible reasons for the apparent high materials consumption in the quarter ended 30 June 20X8; and (ii) Describe the tests you should plan to perform to determine whether materials consumption, as shown in the management accounts, is correct.

Answer

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Tags: Forensic auditing, Fraud investigations, Inventory Valuation, Management accounts, Material consumption
Level: Level 3

Topic: Forensic auditing

AA – L2 – Q45 – Audit Evidence

List and explain audit procedures for inventory count evidence at Pearl & Stone's diamond jewellery shops. Explain factors to consider when using Crystal Experts' work for Pearl & Stone's inventory audit. Describe audit procedures to ensure correct valuation of Pearl & Stone's jewellery inventory.

Question

You are the audit manager in the firm of Amoah & Partners, an audit firm with ten national offices. One of your clients, Pearl & Stone, purchases diamond jewellery from national manufacturers. The jewellery is then sold from Pearl & Stone’s four shops. This is the only client your firm has in the diamond industry.

You are planning to attend the physical inventory count for Pearl & Stone. Inventory is the largest account on the statement of financial position with each of the four shops holding material amounts. Due to the high value of the inventory, all shops will be visited and test counts performed.

With the permission of the directors of Pearl & Stone, you have employed Crystal Experts, a firm of specialist diamond valuers who will also be in attendance. Crystal Experts will verify that the jewellery is, in fact, made from diamonds and that the jewellery is saleable with respect to current trends in fashion. Crystal Experts will also suggest, on a sample basis, the value of specific items of jewellery. Counting will be carried out by shop staff in teams of two using pre-numbered count sheets.

Required:
(a) List and explain the reason for the audit procedures used in obtaining evidence in relation to the inventory count of inventory held in the shops.

(b) Explain the factors you should consider when using the work of Crystal Experts.

(c) Describe the audit procedures you should perform to ensure that jewellery inventory is valued correctly.

Answer

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Tags: Audit Procedures, Diamond Industry, Inventory Valuation, Net Realisable Value, Substantive Procedures
Level: Level 2

Topic: Audit Evidence

Tag (SQ): Inventory Valuation

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FR – L2 – Q71 – Presentation of Financial Statements

Prepare Zestful Ltd's statement of profit or loss and financial position for 20X9, incorporating inventory adjustments, depreciation, tax, and joint operation.

FR – L2 – Q69 – Presentation of Financial Statements

Prepare Nova Bekasi Ltd's statement of profit or loss and financial position for 20X5 per IAS 1, considering inventory, depreciation, tax, and goodwill impairment.

FR – L2 – Q67 – Presentation of Financial Statements

Prepare Wenchi Exports' profit/loss statement and financial position for 20X4 using trial balance, with adjustments for inventory, patents, revaluation, bad debts, and tax.

FR – L2 – Q21 – Property, Plant, and Equipment

Calculate machinery costs, premises costs, depreciation, disposal loss, and revaluation reserve for various transactions.

FA – L1 – Q88 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for XY Healthcare Co Sports and Social Club for 20X9, including subscriptions and inventory adjustments.

FA – L1 – Q52 – Control accounts and account reconciliations

Adjust sales/purchase ledger control accounts and reconcile with individual ledger balances for Kofi Enterprises.

MA – L2 – Q25 – Advanced variance analysis

Calculate actual quantity purchased and cost of materials X and Y, including variances, for VRS Limited.

AA – L2 – Q72 – Inventory Valuation

Discuss amendment need for inventory valuation and impact on auditor's report if unresolved for Mega Construct.

AAA – L3 – Q45 – Forensic auditing

Investigate Accra Engineering Co's losses, focusing on inventory valuation, material consumption, and potential fraud.

AA – L2 – Q45 – Audit Evidence

List and explain audit procedures for inventory count evidence at Pearl & Stone's diamond jewellery shops. Explain factors to consider when using Crystal Experts' work for Pearl & Stone's inventory audit. Describe audit procedures to ensure correct valuation of Pearl & Stone's jewellery inventory.

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Tag (SQ): Inventory Valuation

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FR – L2 – Q71 – Presentation of Financial Statements

Prepare Zestful Ltd's statement of profit or loss and financial position for 20X9, incorporating inventory adjustments, depreciation, tax, and joint operation.

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FR – L2 – Q69 – Presentation of Financial Statements

Prepare Nova Bekasi Ltd's statement of profit or loss and financial position for 20X5 per IAS 1, considering inventory, depreciation, tax, and goodwill impairment.

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FR – L2 – Q67 – Presentation of Financial Statements

Prepare Wenchi Exports' profit/loss statement and financial position for 20X4 using trial balance, with adjustments for inventory, patents, revaluation, bad debts, and tax.

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FR – L2 – Q21 – Property, Plant, and Equipment

Calculate machinery costs, premises costs, depreciation, disposal loss, and revaluation reserve for various transactions.

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FA – L1 – Q88 – Preparation of not-for-profit accounts

Prepare income and expenditure account and statement of financial position for XY Healthcare Co Sports and Social Club for 20X9, including subscriptions and inventory adjustments.

You're reporting an error for "FA – L1 – Q88 – Preparation of not-for-profit accounts"

FA – L1 – Q52 – Control accounts and account reconciliations

Adjust sales/purchase ledger control accounts and reconcile with individual ledger balances for Kofi Enterprises.

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MA – L2 – Q25 – Advanced variance analysis

Calculate actual quantity purchased and cost of materials X and Y, including variances, for VRS Limited.

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AA – L2 – Q72 – Inventory Valuation

Discuss amendment need for inventory valuation and impact on auditor's report if unresolved for Mega Construct.

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AAA – L3 – Q45 – Forensic auditing

Investigate Accra Engineering Co's losses, focusing on inventory valuation, material consumption, and potential fraud.

You're reporting an error for "AAA – L3 – Q45 – Forensic auditing"

AA – L2 – Q45 – Audit Evidence

List and explain audit procedures for inventory count evidence at Pearl & Stone's diamond jewellery shops. Explain factors to consider when using Crystal Experts' work for Pearl & Stone's inventory audit. Describe audit procedures to ensure correct valuation of Pearl & Stone's jewellery inventory.

You're reporting an error for "AA – L2 – Q45 – Audit Evidence"

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