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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

While auditing Kaveri Agro Ltd for the year ended 31 March, the auditor attends the physical verification of inventory on 28 March, three days before the year-end. The company's records show purchases of Rs 4,00,000 and sales at cost of Rs 6,50,000 between 28 March and 31 March. The count value on 28 March was Rs 48,00,000. What inventory value should the auditor expect at 31 March if the roll-back is correctly done?

Expected inventory at year-end is Rs 45,50,000. Starting from the count of Rs 48,00,000 on 28 March, the auditor adds purchases of Rs 4,00,000 and deducts the cost of goods sold of Rs 6,50,000 for the later period. Ignoring either movement gives a wrong figure.

  1. ARs 45,50,000Correct
  2. BRs 50,50,000
  3. CRs 52,50,000
  4. DRs 48,00,000

Explanation

Closing inventory = count value + purchases after count - cost of sales after count = 48,00,000 + 4,00,000 - 6,50,000 = Rs 45,50,000. Rs 50,50,000 wrongly adds the sales instead of deducting them. Rs 52,50,000 adds purchases and sales both, while Rs 48,00,000 ignores movements after the count.

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