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Hi sir, for September 2015 exam Question 4), the audit risk saying that
” In October, a fire damaged inventory such that it has been written down from $0·9m to $0·2m which is its scrap value. This write down should have been charged to profit or loss.
If the goods remain unsold after the year end, there is the risk that the scrap value is overstated and inventory overvalued ”
I don’t understand why the write down should have been charged to profit or loss. In my textbook there was no such treatment under 1AS 2 . Could you explain ?
Also I don’t understand the reason behind why if the goods remain unsold after the year end means there is a risk that the scrap value is overstated and inventory is overvalued? What is the link ?
Where would you want to put the debit entry for the mark-down? Surely it is a trading loss?
If the goods had been marked down and had still not beend sold by year end, presumably they need to be marked down even further as they are not selling at the marked-down price.
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