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Perpetual inventory count- Centipede Co

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › Perpetual inventory count- Centipede Co

  • This topic has 1 reply, 2 voices, and was last updated 3 years ago by Kim Smith.
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  • July 18, 2021 at 7:00 am #628121
    Noah098
    Member
    • Topics: 935
    • Replies: 352
    • ☆☆☆☆☆

    “Inventory could be under or overstated if the perpetual inventory counts are not complete.”

    ma’am how can inventory be overstated if perpetual inventory count is not complete? I thought is was obvious that inventory will ALWAYS be understated if perpetual inventory count was incomplete, until of course i came across this sentence in my kaplan kit.

    July 22, 2021 at 2:13 pm #629120
    Kim Smith
    Keymaster
    • Topics: 135
    • Replies: 8309
    • ☆☆☆☆☆

    See what I wrote in this post https://opentuition.com/topic/continuous-perpetualinventory-count

    The purpose of periodic counting is not to count the actual physical inventory that will be included in the financial statements at the reporting date. The inventory counted in January may be sold by May – the inventory counted in August may be sold by November. Its a SYSTEM of control.

    Counts during the year will be “floor to book” and “book to floor” – of course, in an ideal situation, they should agree. But they won’t. And part of the system of control is that discrepancies.

    Suppose there are 3 products counted as follows:

    A131 – 100 units
    A132 – 200 units
    A133 – 300 units

    But the book records show:
    A131 – 50 units
    A132 – 200 units
    A133 – 350 units

    There is a +50 “over” discrepancy on A131 and a -50 “under” discrepancy on A133. Management can’t just “write-off” the differences – or leave them unresolved. A perfectly reasonable explanation is that 50 units of A133 have been included in the count of A131 (i.e. count quantity needs to be corrected) – or that a sale of 50 units of A133 has been recorded on a GDN as A131 (i.e. book quantities need to be corrected).

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