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Assertions

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Assertions

  • This topic has 5 replies, 2 voices, and was last updated 7 years ago by Ken Garrett.
Viewing 6 posts - 1 through 6 (of 6 total)
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  • November 10, 2017 at 8:50 pm #415167
    kasiak
    Member
    • Topics: 12
    • Replies: 8
    • ☆

    Hi Sir,

    I would like to ask for the following clarification:

    The BPP study book says the following assertions are tested when it comes to classes of transactions: Occurrence, completeness, cut off, accuracy, classification & presentation.
    When it comes to account balances, they are: existence, rights and obligations, completeness, accuracy, valuation & allocation, classification & presentation.

    My question is why cut off and occurrence are tested when the bank and cash system controls are performed?
    During the control of the revenue and capital expenditure, assertion “authorization” is tested? It is not part of the list, as per definition above?

    Thank you!

    November 10, 2017 at 11:00 pm #415178
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10594
    • ☆☆☆☆☆

    Authorisation should never be classified as an assertion. It might be a desirable control, but it is not an assertion.

    With respect to cash and bank, the important assertions are existence, rights (ownership) and accuracy. However, cash is part of the double entry system and the BPP answer is looking at eg, if the rent (say) was paid (occurrence) and if it has been properly apportioned to the year in question (cut-off).

    It is a bit confusing to talk about assertions when talking about control systems: assertions relate to figures in the financial statements, not controls.

    November 16, 2017 at 7:56 pm #416154
    kasiak
    Member
    • Topics: 12
    • Replies: 8
    • ☆

    Dear Sir,

    I’ve found the following definition:
    “IAS 2 Inventories contains the requirements on how to account for most types of inventory. The standard requires inventories to be measured at the lower of cost and net realisable value (NRV) and outlines acceptable methods of determining cost, including specific identification (in some cases), first-in first-out (FIFO) and weighted average cost.”

    My questions are:
    1. Is the knowledge of all the 3 methods of determining cost of inventory mentioned above required for the F8 exam?
    2. What is the Gross Profit Method mentioned in the BBP study text? Get’s me confused a lot, as there is not many details mentioned and I cannot find any link between the GPM and the definition above:(

    Thank you!!!

    November 17, 2017 at 8:45 am #416222
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10594
    • ☆☆☆☆☆

    1 I have not seen a calculation of inventory valuation being required in F8. However, you need to know whether or not the method used is allowed (ie LIFO is not).

    2 This was used primarily in retail stores, particularly clothing. Eg inventory was assessed by noting the clotehs hanging on the sales rail and their selling prices. Cost price was estimated by working back using average GP% or Mark-up %. This made inventory valuation much easier when manual systems were used. However, now with computerised records it is much easier to get to actual cost and the GP method is not much used.

    November 17, 2017 at 4:12 pm #416292
    kasiak
    Member
    • Topics: 12
    • Replies: 8
    • ☆

    In this case, would you please be so kind to list all the possible valuation methods allowed by ISA 2?

    Considering above correspondence, its: specific identification (in some cases), first-in first-out (FIFO), weighted average cost, as per definition
    + GP, maybe not used nowadays that much often, as you explained, but still allowed? I’ve read somewhere that it’s used only for the interim FS? It that correct?

    Anymore methods that I should be aware of?

    Thank you!

    November 17, 2017 at 4:27 pm #416294
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10594
    • ☆☆☆☆☆

    They are all covered above. IAS 2 says nothing about GP method being restricted to interim results.

    IAS 2

    21 Techniques for the measurement of the cost of inventories, such as the standard
    cost method or the retail method, may be used for convenience if the results
    approximate cost. Standard costs take into account normal levels of materials
    and supplies, labour, efficiency and capacity utilisation. They are regularly
    reviewed and, if necessary, revised in the light of current conditions.

    22 The retail method is often used in the retail industry for measuring inventories
    of large numbers of rapidly changing items with similar margins for which it is
    impracticable to use other costing methods. The cost of the inventory is
    determined by reducing the sales value of the inventory by the appropriate
    percentage gross margin. The percentage used takes into consideration
    inventory that has been marked down to below its original selling price. An
    average percentage for each retail department is often used.

    23 The cost of inventories of items that are not ordinarily interchangeable
    and goods or services produced and segregated for specific projects shall
    be assigned by using specific identification of their individual costs.

    24 Specific identification of cost means that specific costs are attributed to
    identified items of inventory. This is the appropriate treatment for items that
    are segregated for a specific project, regardless of whether they have been
    bought or produced. However, specific identification of costs is inappropriate
    when there are large numbers of items of inventory that are ordinarily
    interchangeable. In such circumstances, the method of selecting those items
    that remain in inventories could be used to obtain predetermined effects on
    profit or loss.

    25 The cost of inventories, other than those dealt with in paragraph 23, shall
    be assigned by using the first-in, first-out (FIFO) or weighted average cost
    formula. An entity shall use the same cost formula for all inventories
    having a similar nature and use to the entity. For inventories with a
    different nature or use, different cost formulas may be justified.

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