Accounting For Material

Question 1

It’s a crucial task from…?
When do auditors especially take a good look at company’s stock?
What do materials include?(3)
What does stock balance in spreadsheets represent?(2)

Answer 1

Physical stock management to its valuation
When stock represents significant assets in the company and high stock volume is involved
Raw materials, work in progress, finished goods
Current assets and the value that will be deducted from the company’s profit and loss account

Question 2

What can be achieved by a company playing with its stock figures?(2)

Answer 2

Shift profit from one year to the another by over valuing the stock to achieve minimum tax liability
Create fictitious profit by undervaluing the stock

Question 3

Why might a small business overvalue their stock?

Why my growing businesses undervalue their stock?

Answer 3

Pay minimum corporation tax

To improve the financial performance for borrowing or proposing dividends purposes

Question 4

What are the 3 generally accepted methods?
What do they each mean?
Why do we use the last?

Answer 4

FIFO, LIFO and WAVCO 
First in first out 
Last in first out
Weighted average cost 
Don’t know which units were issuing so take an average value of inventory held at the time of issue