Question
Appendix 1 LIVERM merchandising. MEMO TO: FINANCIAL CONTROLLER FROM: CHIEF AUDIT EXECUTIVE SUBJECT: INVENTORY ISSUES During the internal audit at year-end, we noted that
Appendix 1 LIVERM merchandising. MEMO TO: FINANCIAL CONTROLLER FROM: CHIEF AUDIT EXECUTIVE SUBJECT: INVENTORY ISSUES During the internal audit at year-end, we noted that the following with regards to inventory: - The company purchased additional merchandise that total to BD100,000 during the year. The aggregate purchases amount was verified and included in the unadjusted trial balance. The ending inventory value of BD90,200 was initially calculated based on the inventory count conducted at year-end however the company did not include in the count purchased goods of BD12,000, which were in transit (terms: FOB shipping point). Also, the company did not include in the count inventory that had been sold with a cost of BD13,200, which was in transit (terms: FOB destination). The sales amount of BD14,000 was appropriately recorded in the books. The company included in the inventory goods held on consignment for Road Co., costing BD16,000. The ending inventory value of Product Y (a new product traded during the year) was missed by error however the related purchases and sales have been appropriately accounted for and displayed in the unadjusted trial balance. Product Y information is shown below: Date Activities Units Acquired at Units Sold at Retail Jan 1 Jan 6 Jan 10 Mar 20 Beginning inventory Purchase Sales Purchase Cost Nil 100 units @BD10 foo 90 units @BD40 250 units @BD15 37So 3 600 Apr 8 Aug 30 Sales Purchase 140 units @BD50 7000 400 units @BD20 8000 Nov 3 Nov 281 Sales Purchase 300 units @BD40 12000 600 units @BD25 15000 An assessment of NRV showed no material variation from inventory cost. Yet, we emphasize on the importance of using the FIFO cost flow assumption consistently unless a change of accounting method is appropriately justified. The company is using periodic inventory system.
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