You are assigned to the 30 June 20X8 audit of Sea Gull Airframes Pty Ltd. The company

Question:

You are assigned to the 30 June 20X8 audit of Sea Gull Airframes Pty Ltd. The company designs and manufactures aircraft superstructures and airframe components. You observed the physical inventory at 30 June and are satisfied that it was properly taken. The inventory at 30 June 20X8 has been priced, extended and totalled by the client and is made up of about 5000 inventory items with a total valuation of $8 275 000. In performing inventory price tests, you have decided to stratify your tests and conclude that you should have two strata: items with a value over $5000 and those with a value of less than $5000. The book values are as follows:

No. of items Total value

More than $5000.....................500...........................$4 150 000

Less than $5000.....................4500.............................4 125 000

........................................5000...........................$8 275 000

In performing your pricing and extension tests, you decide to test about 50 inventory items in detail. You select 40 of the over-$5000 items and 10 of those under $5000 at random from the population. You find all items to be correct except for items A-G below, which you believe may be misstated. You have tested the following items, to this point, exclusive of A to G:

No. of items Total value

More than $5000.....................36...............................$360 000

Less than $5000........................7...................................2 600

Sea Gull Airframes uses a periodic inventory system and values its inventory at the lower of FIFO cost or realisable value. You are able to locate all the invoices needed for your examination. The seven inventory items in the sample you believe may be misstated, along with the relevant data for determining the proper valuation, are shown below.

Inventory items possibly misstated

You are assigned to the 30 June 20X8 audit of

Information for pricing from invoices (Seagull Airframes)

In addition, you noted a freight invoice for voucher 12-23 in the amount of $200. This invoice was entered in the freight-in account. Virtually all freight was for the metal formers.
This is the first time Sea Gull Airframes has been audited by your firm.
REQUIRED
a. Review all information and determine the inventory misstatements of the seven items in question. State any assumptions you consider necessary to determine the amount of the misstatements.
b. Prepare a working paper schedule to summarise your findings. Use the computer to prepare the schedule (Instructor's option).