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- This topic has 2 replies, 2 voices, and was last updated 3 years ago by Kim Smith.
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- January 20, 2021 at 12:34 am #607223
Hello Sir,
I have the below doubt in the question :
You are an audit supervisor in Seagull & Co and are currently planning the audit of your existing
client, Eagle Heating Co (Eagle), for the year ending 31 December. Eagle manufactures and sells heating and plumbing equipment to a number of home improvement stores across the country.
The following information has been obtained during a planning meeting with the finance director.
Inventory
Eagle has experienced increased competition. In order to maintain its current levels of sales, it has
decreased the selling price of its products significantly. The finance director expects increased
inventory levels at the year?end. In addition to Eagle’s inventory, there will be inventory stored on
behalf of a third party at the year?end. You plan to attend the year?end inventory count of Eagle
which is being held three days before the year end due to staff availability of Eagle. A
reconciliation will be performed to determine the year?end inventory quantities.
Which TWO of the following factors may indicate overvaluation of inventory at Eagle?
? Increased competition resulting in a decrease in selling price
? Increased inventory levels
? Increased inventory turnover ratio
? Inventory consists of heating and plumbing equipment for home improvement stores
? Inclusion of the third party inventory within Eagle’s inventory balance
My question – As per answer it is 1st and 2nd however isnt 5th one also valid as inclusion of 3rd party inventory may result in overvaluation of inventory , isnt it ? and if not, then why , can you please explain ?Thanks in advance 🙂
January 20, 2021 at 8:38 am #607242An old version of this question does not have these options – I can only think that 5 has been omitted due to oversight or typo.
January 20, 2021 at 8:42 am #607243In fact, if you see here, option 5 has since been added to the question – I think it’s an oversight that it hasn’t been added to the answer https://opentuition.com/topic/indicators-for-overvaluation-of-inventory
You might want to try using the search function also to check whether questions have been answered – e.g. put “Seagull” https://opentuition.com/search-opentuition
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