Valuation – Knowsia

FR – L2 – Q57 – Financial Instruments

Calculate face value and proceeds of debentures issued by Unity Cooperative Ltd.

Question

UNION COOPERATIVE LTD

On 1 July 20X4, Union Cooperative Ltd., issued 20,000 8% debentures at GH¢97.50. The security is redeemable in five years’ time. The interest on the debentures is payable bi-annually on 30 June and 31 December.

On 31 December 20X4, the company’s year-end date, the debentures were quoted on the Ghanaian Stock Exchange for GH¢96.00. The company accountant has suggested each of the following as possible valuation basis for reporting the debentures liability on the statement of financial position as at 31 December 20X4: (i) Face value of the debentures. (ii) Face value of the debenture plus interest payment for five years. (iii) Market value on the statement of financial position as at the year end.

Required

(a) Determine the face value of the debentures and the proceeds accruing to the company.

(b) Determine the amount and explain the nature of the differences between the face value and the market value of the debentures on 1 July, 20X4.

(d) Determine the nominal interest payable on the debentures for the year ended 31 December 20X4.

(e) State arguments for or against each of the suggested alternatives for reporting the debentures liability on the statement of financial position as at 31 December 20X4.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Debentures, Face Value, Financial Position, Market value, Valuation
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FA – L1 – Q44 – Inventory Valuation

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

Question

t 31 December 20X9 Bles had the following items of inventory:

Product	Quantity	Total cost GH₵	Realisable value GH₵	Estimated cost of realisation GH₵
ABC	20	80	200	20
DEF	10	150	120	10
GHI	6	6	7	2
JKL	12	36	12	1

Required
What amount of inventory should be presented in the statement of financial position of Bles at 31 December 20X9.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost, Financial Position, Inventory, Net Realisable Value, Valuation
Level: Level 1

Topic: Inventory

AA – L2 – Q62 – Audit Evidence

Identify deficiencies in Elite Tableware Ltd's inventory count, their implications, recommendations, and audit procedures for inventory.

Question

Your firm is the external auditor of Elite Tableware Ltd, and you recently attended the year-end inventory count at the company’s warehouse. The company manufactures high quality tableware (plates, cups and saucers etc.) and it maintains an integrated computerised system that shows the inventory held at any point in time.
At the year-end inventory count, reports showing the various categories of inventories (but not the quantities) are printed off the system and the quantities of inventories actually counted are inserted annually by the counters. Later the quantities are compared with those per the computer system.
The count instructions were received by both you and the counters the day before the count was due to take place. The instructions consisted of the following five points:
(1) Counters must arrive at 8 am on the morning of the count.
(2) They will work in teams of two people.
(3) Each team will be assigned a specific area of the warehouse to count. They will receive inventory sheets listing the products to be found in their area.
(4) The inventory sheets are pre-numbered.
(5) Once the counters have finished the inventory count, the inventory sheets must be handed to the warehouse manager.

Your notes from the attendance at the count include the following observations:
Many areas in which the count took place were untidy and inventory was sometimes difficult to find because it was not in the allocated area. The same categories of inventories were sometimes found in several different areas and some inventory was incorrectly labelled.
The count was conducted in a hurry in order to close the warehouse before a public holiday and there were insufficient counters to conduct the count properly in the time available. The issue and receipt of inventory sheets (on which the quantities were recorded by counters) was not properly controlled. It was difficult to reconcile the inventory quantities recorded at the count to the computerised records and some significant differences remain outstanding.
Although no finished goods were dispatched during the inventory count, a large delivery of raw materials was received into the warehouse.
Required:
(a) For the inventory count conducted by Elite Tableware Ltd:
(i) Identify and explain FOUR (4) deficiencies in the count.
(ii) Explain the possible implication of each deficiency and
(iii) Provide a recommendation to address each deficiency.

(b) Describe the audit procedures that auditor should perform at the year end to confirm each of the following:
(i) The existence of inventory

(ii) The completeness of inventory

(iii) The valuation of inventory.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Completeness, Deficiencies, Existence, Internal controls, Inventory Count, Valuation
Level: Level 2

Topic: Audit Evidence

AA – L2 – Q44 – Audit Evidence

List and explain audit tests to verify completeness and accuracy of revenue in Tandem Logistics' financial statements. List and describe audit work to verify the statement of financial position figure for vehicles in Tandem Logistics' financial statements.

Question

You are the external auditor of Tandem Logistics, a public limited company (TL). The company’s year-end is 31 March. You have been the auditor since the company was formed 19 years ago to take advantage of the increase in goods being transported by road. Many companies needed to transport their products but did not always have sufficient vehicles to move them. TL therefore purchased ten vehicles and hired these to haulage companies for amounts of time ranging from three days to six months.

The business has grown in size and profitability and now has over 550 vehicles on hire to many different companies. At any one time, between five and 20 vehicles are located at the company premises where they are being repaired; the rest could be anywhere on the extensive road network of the country it operates in. Full details of all vehicles are maintained in a non-current asset register.

Bookings for hire of vehicles are received either over the telephone or via e-mail in TL’s offices. A booking clerk checks the customer’s credit status on the receivables ledger and then the availability of vehicles using the Transport Management System (TMS) software on TL’s computer network. E-mails are filed electronically by customer name in the e-mail program used by TL. If the customer’s credit rating is acceptable and a vehicle is available, the booking is entered into the TMS and confirmed to the customer using the telephone or e-mail. Booking information is then transferred within the network from the TMS to the receivables ledger programme, where a sales invoice is raised. Standard rental amounts are allocated to each booking depending on the amount of time the vehicle is being hired for. Hard copy invoices are sent in the post for telephone orders or via e-mail for e-mail orders.

The main class of asset on TL’s statement of financial position is the vehicles. The net book value of the vehicles is $6 million out of total shareholders’ funds of $15 million as at 30 June 20X8.

Required:
(a) List and explain the reason for the audit tests you should perform to check the completeness and accuracy of the revenue figure in Tandem Logistics’ financial statements.

(b) List and describe the audit work you should perform on the statement of financial position figure for vehicles in Tandem Logistics’ financial statements for the year ended 30 June 20X8.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Procedures, Completeness, Depreciation, Existence, Financial Statements, Non-current Assets, Substantive Procedures, Transport Industry, Valuation, Vehicles
Level: Level 2

Topic: Audit Evidence

AA – L2 – Q34 – Audit Evidence

Explains importance of year-end inventory counting for auditors in non-perpetual inventory systems. Describes audit procedures to rely on a perpetual inventory system in a large, dispersed organisation Describes deficiencies in Lennox’s inventory counting instructions and why they are difficult to overcome. Describes audit evidence from third-party inventory confirmation, practical difficulties, and alternative evidence.

Question

(a) Explain why year-end inventory counting is important to the auditors of organisations that do not have perpetual inventory systems.

(b) Describe audit procedures you would perform in order to rely on a perpetual inventory system in a large, dispersed organisation.

(c) Carter Retail is a family-owned company which retails beds, mattresses and other bedroom furniture items. The company’s year-end is 31 December. The only full inventory count takes place at the year end. The company maintains up-to-date computerised inventory records.
Where the company delivers goods to customers, a deposit is taken from the customer and customers are invoiced for the balance after the delivery. Some goods that are in inventory at the year-end have already been paid for in full – customers who collect goods themselves pay by cash or credit card.
Staff at the company’s warehouse and shop will conduct the year end count. The shop and warehouse are open seven days a week except for two important public holidays during the year, one of which is 1 January. The company is very busy in the week prior to the inventory count but the shops will close at 15.00 hours on 31 December and staff will work until 17.00 hours to prepare the inventory for counting. The company has a high turnover of staff. The following inventory counting instructions have been provided to staff at Carter Retail.
(i) The inventory count will take place on 1 January 20X5 commencing at 03/00 hours. No movement of inventory will take place on that day.
(ii) The count will be supervised by Mr Baker, the inventory controller. All staff will be provided with pre-printed, pre-numbered inventory counting sheets that are produced by the computerised system. Mr Baker will ensure that all sheets are issued, and that all are collected at the end of the count.
(iii) Counters will work on their own, because there are insufficient staff for them to work in pairs, but they will be supervised by Mr Baker and Mrs Wilson, an experienced shop manager who will make checks on the work performed by counters. Staff will count inventory with which they are most familiar in order to ensure that the count is completed as quickly and efficiently as possible.
(iv) Any inventory that is known to be old, slow-moving or already sold will be highlighted on the sheets. Staff are required to highlight any inventory that appears to be soiled or damaged.
(v) All inventory items counted will have a piece of paper attached to them that wil show that they have been counted.
(vi) All inventory that has been delivered to customers but that has not yet been paid for in full will be added back to the inventory quantities by Mr Baker.

Required:
Describe the deficiencies in Carter Retail’s inventory counting instructions and explain why these deficiencies are difficult to overcome.

(d) Where inventory is held by third parties auditors will need to obtain external confirmation of such inventory.

Describe the audit evidence provided by such confirmation, the practical difficulties in obtaining it and the alternative audit evidence available when such confirmation is not provided.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Audit Evidence, Existence, Internal controls, Inventory Counting, Valuation
Level: Level 2

Topic: Audit Evidence

Tag (SQ): Valuation

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

FR – L2 – Q57 – Financial Instruments

Calculate face value and proceeds of debentures issued by Unity Cooperative Ltd.

FA – L1 – Q44 – Inventory Valuation

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

AA – L2 – Q62 – Audit Evidence

Identify deficiencies in Elite Tableware Ltd's inventory count, their implications, recommendations, and audit procedures for inventory.

AA – L2 – Q44 – Audit Evidence

List and explain audit tests to verify completeness and accuracy of revenue in Tandem Logistics' financial statements. List and describe audit work to verify the statement of financial position figure for vehicles in Tandem Logistics' financial statements.

AA – L2 – Q34 – Audit Evidence

Our offerings

Contact Info

Customer

Get In Touch

Tag (SQ): Valuation

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

FR – L2 – Q57 – Financial Instruments

Calculate face value and proceeds of debentures issued by Unity Cooperative Ltd.

You're reporting an error for "FR – L2 – Q57 – Financial Instruments"

FA – L1 – Q44 – Inventory Valuation

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

You're reporting an error for "FA – L1 – Q44 – Inventory Valuation"

AA – L2 – Q62 – Audit Evidence

Identify deficiencies in Elite Tableware Ltd's inventory count, their implications, recommendations, and audit procedures for inventory.

You're reporting an error for "AA – L2 – Q62 – Audit Evidence"

AA – L2 – Q44 – Audit Evidence

List and explain audit tests to verify completeness and accuracy of revenue in Tandem Logistics' financial statements. List and describe audit work to verify the statement of financial position figure for vehicles in Tandem Logistics' financial statements.

You're reporting an error for "AA – L2 – Q44 – Audit Evidence"

AA – L2 – Q34 – Audit Evidence

You're reporting an error for "AA – L2 – Q34 – Audit Evidence"

Our offerings

Contact Info

Customer

Get In Touch

admin