Your firm is the auditor of Best Drink Sdn Bhd, and you have been asked to audit the valuation of the companys inventory at 31 December 2019 in accordance with MFRS 102 Inventories. Best Drink Sdn Bhd operates from a single factory, purchases local fruits from the wholesalers, manufactures them into fruit juices and then sells them to the general public.

The inventory consists of canned carbonated fruit drinks, bottled fruit drinks and fruit cordial drinks. They are sold in house, as well distributed to other sellers who operate local shops and vending machines.

As an auditor of the company, you found the followings:

• A full physical inventory count was carried out at the year-end, and you are satisfied that the inventory was counted accurately and there are no cut-off errors.

• Because of the limited time available between the year end and the completion of the audit, the company has valued the inventory at cost (by recording the selling price and deducting the normal gross profit margin). Inventory which the company believes to be worth less than cost has been valued at net realisable value. The selling price used is the price used for selling the item in store when it was counted.

• The inventories have a two-year shelf life from their manufacturing dates. One of the risk of the fruit drinks is that one can or bottle can spoil the rest of the inventories in batches especially during transportation. Thus, it is very important to ensure that no single can or bottle leaks.

Required:

1. Identify the risks relating to inventory for Best Drink Sdn Bhd. Explain your answers

(3 Marks)

2. Suggest six (6) suitable substantive tests of details that you would conduct.)

(12 Marks)

(Total: 15 Marks)