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overvaluation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › overvaluation

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by Ken Garrett.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • December 22, 2017 at 2:02 pm #424462
    stepstothebest
    Member
    • Topics: 62
    • Replies: 15
    • ☆☆

    Hello Sir.

    it is a part of the bullet questions, so I just write the simple one very briefly.

    1)

    Increased inventory levels for a company experiencing a reduction in sales may result in inventory not being sold and therefore NRV may be lower than cost. –

    this is one of the examples that indicate overvaluation of inventory.

    but under my common thought,

    the one is chosen at the lower of NRV and cost…..
    that’s why i think the bullet only explains the common concept rather than indicates
    overvaluation.

    2)

    i just start to study this subject, therefore i totally undergo the lack of knowledge.
    what i mean is that please understand my silly questions Sir.

    i’ve already listened to all your lectures very fast to look over contents in F8 and questions.
    the toughest part is Audit procedure and most likely the words there are not familiar to me.

    i’m not a native speaker, hence i am not able to automatically feel the meaning of those words for example, in Bank and cash, the key assertions for those are existence and valuation.

    one of the procedure is like Trace all of the outstanding lodgements to the pre year-end cash book, post year-end bank statement and also to paying-in-book pre year-end which indicates Accuracy&Valuation, Existence.

    How do Accuracy&Valuation and Existence come out of this procedure?

    I know the theory of Existence and so on, but my brain can’t catch what assertion procedures mean.>>> really terrible problem.

    if there is no way of going through, i have no choice to memorize all.

    my life is ACCA and i’m ACCA. there is nothing left from me without this in my life Sir.

    help me

    December 22, 2017 at 2:15 pm #424467
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10595
    • ☆☆☆☆☆

    1 Inventory should be valued at the lower of cost and NRV. Higher inventory with lower sales increases the risk that NRV will be lower than cost.

    2 Existence: if the money does not appear in the bank account soon after year end, the two possible explanations are bank error or misrecording of receipts and lodgements (deposits). If it is the second explanation then the deposit does not exist or has been recorded inaccurately.

    Valuation isn’t really a big problem with cash. Proving it exists is enough (unless you are dealing with foreign currency or something volatile like Bitcoins).

    I’m afraid you have to try to learn the assertions. Doing questions will give practice explaining them.

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