Page 179 - CA Inter Audit PARAM

CA Ravi Taori

controller or finance director.

Schedule of movements
Prepare schedule of movements on Bad loans/ advances – Provision Accounts and loans/
advances written off.

Restatement of foreign currency Items
Check that the restatement of foreign currency loans and advances/ other current assets
has been done properly.

➢ Valuation of Finished Goods and Goods for Resale:
Methods
Depending on how the business operates, the management may value inventory using
“first-in first- out,” “last-in first-out,” or a weighted average system. First-in first-out, called
FIFO, values inventory at close to its current replacement cost. Last-in first-out, called LIFO,
values inventory at close to its original purchase cost. A weighted average system values
inventory according to an average cost of all inventory items bought during the period.

Finished goods and goods for resale
• Cost
Enquire into what costs are included, how these have been established and ensure
that the overheads included have been determined based on normal costs and
appear reasonable in relation to the information disclosed in the draft financial
statements.

• NRV
Ensure that inventories are valued at net realizable value if they are likely to fetch
a value lower than their cost. For any such items, also verify if the relevant semi/
partly processed inventories (work in progress) and raw materials have also been
written down.

• Obsolete Items
o Follow up for items that are obsolete, damaged, slow moving and ascertain
the possible realizable value of such items. For the purpose, request the client
to provide inventory ageing split between less than 30 days, 30-60 days old,
60-90 days old, 90-180 days old, 180-385 days old and more than 365 days
old
o Follow up any inventories which at time of observance of physical counting
were noted as being damaged or obsolete.
o Calculate inventory turnover ratio. Obsolete inventory may be revealed if
ratio is significantly lower.
o In manufacturing environments, test overhead allocation rates and ensure
that only direct labour, direct material and overhead have been included.
o Verify the correct application of lower-of-cost-or-net realizable value
principles.

QNO-- B/S (Other Current Assets, GST Input Tax Credit) New Course – (M24M)
AIFS.45.20 Bhaskar CNO –AIFS-P2.120

WTE Private Limited is engaged in business of manufacturing a product liable to GST @ 5%. The input raw
materials for manufacturing this product are liable to GST @ 12% and 18%. As a result, at the end of financial
year, ITC on inputs amounting to ₹ 60 lacs is accumulated in Electronic Credit ledger and refundable to

company under provisions of GST law. How would above amount of ₹ 60 lacs be reflected and classified in
balance sheet of company? State few audit procedures to be performed by you for verification of abovesaid
balance.
Answer In the given situation, ₹ 60 lacs is accumulated in Electronic credit ledger of WTE Private Limited as finished
product is liable to lower GST rate whereas input raw materials for manufacturing carry higher GST rate. It
is refundable to company by virtue of provisions of GST law. The above balance would be reflected and
classified under current assets. Within current assets, it would be classified into “Other current assets”.

Few audit procedures to be performed for verification of above balance are:
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