Rapid Gombak is a transportation company that provide transportation services in Gombak. Among their services include the commuters and busses. You have been hired as a new controller for the Rapid Gombak Company. Shortly after joining the company in 2018, you have discovered the following errors related to 2016 and 2017 financial statements: a. Inventory at 31 December 2016 was understated by RM6,000. b. Inventory as 31 December 2017 was understated by RM9,000. c. On 31 December 2017, inventory was purchased for RM3,000. The company did not record the purchase until the inventory was paid for in early 2018. At that time, the purchase was recorded by a debit to purchases and a credit to cash. d. The company uses a periodic inventory system.

Required: (a) Assuming the errors were discovered after the 2017 financial statements were issued, analyse the effect of the errors on 2016 and 2017 cost of goods sold, net income, and retained earnings (ignoring the income taxes). (b) Prepare journal entries for the adjustments to take place. (c) What other step(s) would be required for the adjustments in (ii)? (d) Rapid values its inventory at the lower of cost or market. What does that mean? Under what circumstances might Rapid Oil be justified in reporting its inventory at less than cost?