"Testing should be undertaken to confirm cost and NRV of the affected paint products held in inventory and that on a line by line basis the goods are valued correctly."
ma'am why does this line specifically say that "on a line by line basis the goods are valued correctly"?
Ask the Tutor ACCA AA
auditor's response, inventory related
5y ago#1It means product line - each of which would also be a line on the stockcount sheets. It's important not to lump together different products because IAS 2 requires that inventories be written down to NRV on an "item-by-item" basis.
So if there were 10 tins of lime green paint with cost $10 each and selling price $5 each, that should be valued at $50. (Ignoring selling costs for simplicity.)
And if there were 10 tins of white paint with cost $10 each and selling price $15 each, that should be valued at $100. So $150 in total.
You can't lump together 20 tins - cost $200 and compare against their combined realisable value ($200) and say therefore that no write-down is required. This would be to offset a $50 loss in value that should be recognised now against a future unrealised profit of $50 when the white paint is sold in a later accounting period.
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