Question 1)

Midas Ltd is a conglomerate that produces its consolidated financial statements for the year ended 31 December 20X7. John Poor, the accountant of Midas Ltd, had been reviewing the financial statements of Fencing Ltd, a recently acquired subsidiary that carries on business as a fencing company, and considered the rate of inventories and sales to be unexpectedly high.

In response to his enquiry, Fencing Ltd. produced the following information concerning the inventories.

Inventories were made up of raw materials at a cost of $86,000 and finished goods at a cost of $27,000.

The raw materials consisted of 8,600 metres of teak fencing of $10 per metre. The finished goods consisted of 10 security gates that the company had manufactured in its own foundry at a cost of $1,500 each and 1,000 metres of metal fencing manufactured in the foundry at a cost of $12 per metre.

(1) Raw materials

Cheap supplies of teak had started coming into the country in January 20X8 from Indonesia at a list price of $5 per metre. The trade press had described these imports as dumping and had been making representations to government of the imports to be restricted.

(2) Finished goods

Security gates could from mid January 20X8 be imported from Germany at $750 per gate. The German supplier had recently invested in advanced technology and the company could not match its costs at its own foundry.

Required:

To state, with reasons, the amount of inventories at which you consider that they should appear in the statement of financial position of Fencing Ltd as at 31 December 20X7.

Question 2)

Bukit Group has the following beginning inventory, purchases, sales and ending inventory information for the year ended 31 December 20X8:

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NumberUnit cost

20X8of units $

1 Jan Beginning inventory.........20,00020

15 FebPurchases......................30,40021

25 Mar Sales............................ 10,100

2 Apr Purchases......................10,50022

9 JulPurchases......................50,00023

25 OctSales............................ 53,000

20 Nov Purchases......................12,20024

31 Dec Ending inventory..............60,000 ?

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REQUIRED:[Show all your workings]

Determine the cost of goods sold, and the cost of ending inventory as at 31 December 20X8 under the following methods:

(a)The FIFO method when the group adopts a periodic inventory system;

(b)The weighted average cost method when the group adopts a periodic inventory system.

Question 3)

In an annual audit of Mateko Company at 31 December 20X5, you find the following transactions near the closing date.

1.A special machine, fabricated to order for a customer, was finished and specifically segregated in the back part of the shipping room on 31 December 20X5. The customer was billed on that date although the machine was shipped on 4 January 20X6.

2.Merchandise costing $2,800 was received at reception on 3 January 20X6, and the related purchase invoice was recorded on 5 January 20X6. The invoice showed the shipment was made on 29 December 20X5, f.o.b. purchaser's office.

3.A packing case containing a product costing $3,400 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked "Hold for shipping instructions". Your investigation revealed that the customer's order was dated 18 December 20X5, but the case was shipped and the customer was billed on 10 January 20X6. The product was a stock item of your client.

4.Merchandise received on 6 January 20X6, costing $680 was entered in the purchase journal on 7 January 20X6. The invoice showed shipment was made f.o.b. supplier's warehouse on 31 December 20X5. Because it was not on hand at 31 December 20X5, it was not included in inventory.

5.Merchandise costing $720 was received on 28 December 20X5, and the invoice was not recorded.You located the invoice was in the hands of the purchasing agent; it was marked "on consignment".

Required:

As an auditor of Mateko Company, assuming each of the amounts is material, state whether the merchandise should be included in Mateko's inventory as at 31 December 20X5. Give your reasons for your decision on each of them.