ID: A me: 3. List the internal control objectives illustrated by the following:
ID: 2338902 • Letter: I
Question
ID: A me: 3. List the internal control objectives illustrated by the following: (a) keeping the inventory storeroom locked (b) counting the inventory at the end of the accounting period and comparing it with the inventory ledger clerk's records (c) using subsidiary Tedgers and a perpetuar inventory system 4. The beginning inventory and purchases of an item for the period were as follows: Beginning inventory First purchase Second purchase Third purchase 6 units at $70 each 10 units at $75 each 18 units at $80 each 10 units at $85 each The company uses the periodic system, and there were 15 units in the inventory at the end of the period. Determine the cost of the 15 units in the inventory by each of the following methods, presenting details of your computations: (a) first-in, first-out, (b) last-in, first-out; (c) average costExplanation / Answer
a)keeping the inventory storeroom locked Ans: Inventory being the asset of any organisation should be stored with care.As investment in inventory is usually a large one. The storeroom should be kept locked so that only authorised personnel is allowed to enter the storeroom(warehouse), else inventory can be readily stolen and resold b)counting the inventory at the end of the accounting period and comparing it with the inventory ledger clerk's records Ans: Counting Inventory is necessary for all management systems but it's frequency may vary from organisation to organisation. It is a legal requirement given in Accounting standards to carry out Physical verification of Inventory to reflect that book inventory correctly reflects the physical inventory. Cross checking it with the clerk's records ensures efficiency in terms of effective internal control system in any organisation. c)using subsidiary ledgers and a perpetual inventory system Ans: Subsidiary ledgers are used to separate account for each inventory the company uses. Depending on the type of business the company decides to have perpetual inventory system or periodic inventory system. Perpetual Inventory system will help in tracking the current balance of each inventory item by updating that balance with each transaction First in First Out(FIFO) Cost of Closing Stock of 15 units: 10*85= 850 5*80= 400 =1250 Stock of 5 units from 2nd Purchase and 10 units of 3rd purchase will be there so the total cost of 15units is $1250 Last in first out Cost of Closing Stock of 15 units: 6*70= 420 9*75= 675 =1095 Stock of 6 units from Opening Inventory and 9 units from 1st purchase will be there so the total cost of 15units is $1095 Average Cost Particulars Units Price Cost=Units*Price Opening Inventory 6 70 420 1st Purchase 10 75 750 2nd Purchase 18 80 1440 3rd Purchase 10 85 850 44 3460 Avg Cost of 15units of Closing Inventory = Average Cost*15/Avg No. of units =3460*15/44 =$1179.54