l12 : asset measurement

Question 1

what was sports direct scandal in relation to asset measurement?

Answer 1

• had large 4% increase in gross profit margin
• caused due to large writ-down inventory charge in previous yr (flotation yr)

Question 2

what was toshibas scandal in relation to asset measurement?

Answer 2

• overstated value of inventory in 2015, so manipulated profits
• inflated profits by $1.3bn over 7yrs
• resulted in 65% fall in share price when accounting mistakes found

Question 3

how does the retail industry ascertain cost?

Answer 3

price firm had to pay for goods from supplier invoices

Question 4

how does the manufacturing industry ascertain cost?

Answer 4

all costs of purchase, cost of conversion and other incurred costs. includes bringing inventory to present location and condition

Question 5

what is the procedure to ascertain cost?

Answer 5

• direct material
• direct labour
• appropriate overheads

Question 6

state factors that the NRV can be affected by.

Answer 6

• permanent fall in market price
• excessively priced stock
• high stock levels & liquidity problems
• deterioration & obsolescence
• marketing strat to penetrate market

Question 7

why are there concerns over creative accounting?

Answer 7

allows for year end manipulation.
- ineffective cut off procedures
- window dressing & internal transfers
- subjective use of nrv rule
- optimistic view of obsolescence
- inaccuracies in physical inventory stock