Blunt Limited manufactures a range of cleaning equipment, operates from large factory premises and prepares its annual financial statements to 31 December. It has a stores area from which raw materials and parts are issued to production, and a finished goods store. In recent months the company has encountered severe difficulties in controlling its inventory resulting in losses, stopped production due to the shortage of parts and incorrect valuation of inventory. The company has been using a system of continuous inventory checking (also known as a perpetual inventory system) as a means of control, but the directors recognise that the system has failed during the current year. Consequently they have agreed that company employees will carry out a physical inventory count as at 31 December 2018, as a basis for valuing inventory for inclusion in the companys annual financial statements. The directors have also agreed to seek advice from your audit firm in connection with the introduction of a satisfactory system of continuous inventory checking to be introduced from February 2018 and also in connection with the valuation of inventory.

Required: a. State FIVE objectives of the internal controls that should be exercised over inventory, including inventory records. (5 marks)

b. State FIVE procedures that Blunt Limited will need to incorporate in its revised continuous inventory checking system, if it is to be relied upon by the companys auditors. (5 marks)

c. Describe SIX matters that should be covered by the physical inventory count instructions to facilitate an efficient and reliable count as at 31 January 2018. (9 marks)

d. (i) Define the term cost as applied to inventory; (2 marks)

(ii) Define the term net realisable value as applied to inventory; (2 marks

) (iii) State how Blunt Limited should value its inventory as at 31 December 2018 in accordance with IAS2 Inventories.