Question 5 (20 marks)

You encountered the following situations during the 31 December 2019 physical inventory of Zubair Enterprise:

1. Zubair maintains a large portion of shoe merchandise in 10 warehouses throughout northern Western Australia. This ensures swift delivery service for its chain of stores. You are assigned alone to the Broome warehouse to observe the physical inventory process. During the inventory count, several expresses pulled in for loading. Although infrequent, express shipments must be attended to immediately. As a result, the employees who were counting the inventory stopped to assist in loading the express trucks. What should you do?

(5 marks)

1. (i) In one storeroom of 10,000 items, you have test-counted about 200 items of high value and a few items of low value. You found no misstatement. You also note that the employees are diligently following the inventory instructions. Do you think you have tested enough items? Explain.

(ii) What would you do if you test-counted 150 items and found a substantial number of counting errors?

(5 marks)

1. In observing an inventory of liquid shoe polish, you note that one lot is 5 years old. From an inspection of some bottles in an open box, you find that the liquid has solidified in most bottles? What action should you take?

(5 marks)

1. During your observation of the inventory count in the main warehouse, you found most of the pre-numbered tags have been correctly filled out are being destroyed and thrown away. What is the significance of this procedure and what action should you take?

(5 marks)