Technical Wizardry Ltd (TW) was originally set up in 1937 as the Typewriter Wholesaling Co. Ltd. The change of name reflects its strategy of moving into a new market in response to the decline in demand for typewriters and the increasing use of word processors and microcomputers in business. TW continues to sell typewriters but has gradually moved into the computer market, beginning by selling computer printers and going on to develop two computers of its own: the T700 and T35.

TW’s year-end is 31 December and this case takes place in mid-January 19X1, during the latter part of the 19X0 audit. TW’s profit before tax for 19X0 is expected to be about £15,000 on a turnover of £3 million. The auditors have completed the systems work and stocktaking attendance, with satisfactory results, and are now considering what tests need to be performed on stock valuation. Extracts from their working papers are given below........................

QUESTIONS FOR DISCUSSION
1. What problem areas do you see with regard to the valuation of TW’s stock?
2. Assuming that systems testing and stocktaking attendance have had satisfactory results, what audit tests should now be performed to ensure that the stock valuation is correct or to identify any possible misstatement?