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.

DOOFUS COMPANY Two One Years gear This ago ago gear INVENTORY .. 65,043 72,543 67,101 PURCHASES 471,734 444.234 490,102 536,777 516,777 557,203 COST OF SALES 464,234 449,676 465,695 INVENTORYeog 72.543 67,101 71,508 536,777 516,777 537,203 VOUCHERS PAYABLEL-. 25,114 29,785 30,671 PURCHASES 471,734 444,234 490,102 496,848 474,019 520,773 CASH DISBURSEMENTS 467,063 443,347 488,250 VOUCHERS PAYABLE... 29,785 30.671 32.524 496,848 474,019 520,773 SALES 592,312 598,235 604.217le COPY AND PAST FROM THE FOLLOWING P 4- Increasing COS Decreasing TI Steady Vpe R&A AOBSe XOBS D Identify THREEr ratios, based on the above variables, and indicate how they would be affected by the misstatement condition RATIO HOW AFFECTED COPY AND PAST FROM THE FOLLOWING Increasing Decreasing SteadyA Think of a misstatement condition and describe how it could occur. [text will wrap] B Identify the affected assertion[s] DO NOT ASSUME THAT YOU NEED TO IDENTIFY MORE THAN ONE1-STANDARD DEVIATION LIMITS Two One Standard HIGH, Years gear This deviation LOWER UPPER LOW ago ago gear Average LIMIT LIMIT or OK? PURICO 1.010 1.002 1.004 1.006 0.0057 1.000 1.012 PUR/INVe 6.503 6.620 6.854 6.562 0.0832 6.478 6.645 PURICOS 1.016 0.988 1.052 1.002 0 0200 0.982 1.022 COSINVe 6.399 6.702 6.512 6.550 0.2136 6.337 6.764 YPelCO 0.064 0.069 0.067 0.066 0.0038 0.063 0.070 COSICO 0.994 1.014 0.954 1.004 D.0144 0.990 1.018 COSISALES 0.784 0.752 0.771 0.768 0.0227 0.745 0.790