Assume that a company is a wholesaler of goods that are purchased from manufacturers or other suppliers. It segregates its inventory purchasing activities from all other purchasing and payables [such as plant, equipment, utilities or services]. In the normal course of events, inventories are replenished by purchasing from vendors, which deliver goods that are entered into inventory. The company then sells the goods. The values of some items in inventory become impaired [that is, they can only be sold at prices below cost] and are written down. The company estimates the aggregate impairment as an allowance for obsolescence, which is a contra asset account.

Here are the relationships involved:

Ie = Ib + P- COS -WD

VPe =VPb + P - R&A

AOBSe = AOBSb + XOBS - WD

Ie and Ib are ending and beginning of period inventory amounts, at original or written down costs

P is purchases during the period.

COS is cost of inventory sold

WD is the amount of individual inventory items that have been written down during the period.

VPe and VPb are the end and beginning of period amount of vouchers payable for purchased inventory.

R&A and returns and allowances during the period

AOBSe and AOBSb are end and beginning of period allowance for obsolescent inventory.

XOBS is an estimate of the amount of loss in inventory value due to unsalability.

The company charges the estimated loss to selling, general and administrative costs [SGA], and income statement account.

Question A Think of a misstatement condition and describe how it could occur.[text will wrap]

Question B Identify the affected assertion[s] DO NOT ASSUME THAT YOU NEED TO IDENTIFY MORE THAN ONE