QUESTION 3 (27 MARKS) The risk of material misstatement in an entity's inventory account will vary considerably depending on the nature, location, and other characteristics of the inventory itself. Consider the following entities: 1. Stutt Forest (Pty) Ltd - the entity owns thousands of hectares of plantation. When matured, the trees are felled and transported to the entity's mills where they are tumed into paper, chipboard, and a number of lesser products. 2. BricBrac (Pty) Ltd - the entity manufactures bricks at its East London brickyard. Bricks are baked in 25 baking ovens (kilns). Finished bricks and pavers are held at the East London depot and on consignment, by the entity's agents around the country. 3. Shine Bright (Pty) Ltd - the entity purchases precious stones which have already been cut and polished, and sells them to manufacturing jewellers. 4. In Home (Pty) Ltd - the entity sells upmarket, imported furniture and home dcor items. In Home (Pty) Ltd is experiencing financial difficulties and the pending financial statements will be submitted to the bank in support of a loan application. 5. Jimbo Shooz (Pty) Ltd - the entity sells top fashion imported shoes. Jimbo Shooz (Pty) Ltd has five outlets located in upmarket shopping malls across the country. All of the above entities are large and their respective inventory balanaces are material. 101 HAUD230-1-Jul-Dec2022-FA2-DE-05072022 ANNEXURE I: FORMATIVE ASSESSMENT 2 REQUIRED: 3.1) Based on the information given information, categorise the above entities as follows: - High risk of material misstatement in the inventory balance - Medium risk of material misstatement in the inventory balance - Low risk of material misstatement in the inventory balance. (5 marks) 3.2) Explain, with reasons, why each entity has been categorised into its respective category in 3.1 above. QUESTION 3 (27 MARKS) The risk of material misstatement in an entity's inventory account will vary considerably depending on the nature, location, and other characteristics of the inventory itself. Consider the following entities: 1. Stutt Forest (Pty) Ltd - the entity owns thousands of hectares of plantation. When matured, the trees are felled and transported to the entity's mills where they are tumed into paper, chipboard, and a number of lesser products. 2. BricBrac (Pty) Ltd - the entity manufactures bricks at its East London brickyard. Bricks are baked in 25 baking ovens (kilns). Finished bricks and pavers are held at the East London depot and on consignment, by the entity's agents around the country. 3. Shine Bright (Pty) Ltd - the entity purchases precious stones which have already been cut and polished, and sells them to manufacturing jewellers. 4. In Home (Pty) Ltd - the entity sells upmarket, imported furniture and home dcor items. In Home (Pty) Ltd is experiencing financial difficulties and the pending financial statements will be submitted to the bank in support of a loan application. 5. Jimbo Shooz (Pty) Ltd - the entity sells top fashion imported shoes. Jimbo Shooz (Pty) Ltd has five outlets located in upmarket shopping malls across the country. All of the above entities are large and their respective inventory balanaces are material. 101 HAUD230-1-Jul-Dec2022-FA2-DE-05072022 ANNEXURE I: FORMATIVE ASSESSMENT 2 REQUIRED: 3.1) Based on the information given information, categorise the above entities as follows: - High risk of material misstatement in the inventory balance - Medium risk of material misstatement in the inventory balance - Low risk of material misstatement in the inventory balance. (5 marks) 3.2) Explain, with reasons, why each entity has been categorised into its respective category in 3.1 above