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damaged inventory

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › damaged inventory

  • This topic has 1 reply, 2 voices, and was last updated 12 months ago by Kim Smith.
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  • July 5, 2021 at 6:48 am #626990
    Noah098
    • Topics: 936
    • Replies: 352
    • ☆☆☆☆☆

    “scenario: In October, there was a fire in one of the warehouses; inventory of $0.9 million was damaged and this has been written down to its scrap value of $0.2 million.

    Audit risk: This write down should have been charged to profit or loss.

    If the goods remain unsold after the year?end the scrap value may be overstated. There is a risk of inventory being overvalued.”

    Maam i don’t understand why in the audit risk the kit states that “write down should have been charged to SPL”? I mean when we have already reduced the inventory to its NRV then recording a separate impairment loss will mean that 0.7+0.7=$1.4m of the loss will be charged in the SPL, isnt it?

    July 5, 2021 at 7:11 pm #627035
    Kim Smith
    Keymaster
    • Topics: 88
    • Replies: 6096
    • ☆☆☆☆☆

    Audit risk is that inventory is overstated and hence profit is overstated.

    You are correct that writing closing inventory down to NRV results (automatically) to recognition of expense in profit or loss.

    “This write down should have been charged to profit or loss.” is really a statement of fact/conclusion on how it should have been recognised. Per se, it does not explain/describe the risk.

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