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auditor’s response, inventory related

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › auditor’s response, inventory related

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Kim Smith.
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  • July 7, 2021 at 8:16 am #627131
    Noah098
    Member
    • Topics: 935
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    • ☆☆☆☆☆

    “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”?

    July 7, 2021 at 8:58 am #627141
    Kim Smith
    Keymaster
    • Topics: 100
    • Replies: 6789
    • ☆☆☆☆☆

    It 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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