Question
TDS is a distributor of computer parts such as circuit boards and memory storage. TDS is located in Calgary, Alberta, and has a small customer
TDS is a distributor of computer parts such as circuit boards and memory storage. TDS is located in Calgary, Alberta, and has a small customer base that tends to place regular orders. You, CPA, have just been assigned as the audit senior on the inaugural TDS audit for the period ended December 31, 2018. Previously, TDS had reviews completed by your firm. As senior auditor, you will be responsible for dealing with inventory where professional judgment is required, including valuation of inventory items and analysis of items that may require a writedown. TDS sells an average of 46 items of each type of product per year at an average margin of 24%.
TDS has provided you with an electronic copy of its inventory cost analysis and inventory data log files for the past three years. The inventory cost analysis file includes the master list of the product numbers, cost, and average sales price. The inventory data log file shows the quantity sold. TDS provided this information to help you determine if any of the inventory items require a writedown.
prepare a memo to the audit partner discussing what inventory items are overvalued and the amount of provision TDS should adjust for the December 31, 2018, inventory year end. The partner may wish to discuss the inventory writedown with TDSs management, so be as specific as possible with your examples and state any assumptions you have made in your analysis.
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