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Hello Sir,
from the PYQ from DEC/SEP 2018Q16(d)Faulty inventory substantial procedure
(i)
the cost of the rectification will be added to the damaged goods
(capitalised)and the closing inventory have a new cost of it?(ii)
“-From the breakdown, agree the damaged goods quantities manufactured since June to production records; and agree to sales records the quantities sold ”the breakdown will show the quantity sold for the damaged inventory? as I’m not sure about what details of breakdown will show .
Thank you.
(i) It is not clear if you are suggesting this as a point or querying a point made in the answer. Cost of rectification could be capitalised – if say – the original cost was less than it should have been (e.g. because some ingredients had been omitted or the process previously performed incomplete) but this shouldn’t be automatic. The inventory can’t be given a revised cost that exceeds its net realisable value.
(ii) The breakdown is a schedule showing what has happened to the damaged goods – it will need to be written down to the extent that it is held at the y/e (whether it is unsold or was sold and has been returned). Allowance will also have to be made for the faulty goods that have been sold but not yet returned at the y/e.
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