Reference no: EM131647988

Q1. How does the timing in the recording of purchases and sales affect Safety International Ltd's profitability?

Q2. The following information was revealed by the accountants that were performing the audit;

(a) There were goods in transit on 30 June 2017 from a supplier called PlasticCo Ltd, with terms EXW, costing $10,000. The goods were scheduled to arrive by July 21, 2017.

(b) On 27 June, a regular customer, Kemp Ltd, purchased air bags for cash amounting to $1,000 from Safety International Ltd. The goods were left in the Safety International Ltd warehouse by Kemp Ltd and were to be picked up on 4 July 2017.

(c) Office supplies were shipped to Safety International Ltd by Office Max, termed DDP. The goods were shipped on 29 June and received on 30 June.

(d) Sally on the date of the inventory count, received notice from a supplier that goods ordered earlier at a cost of $4,000, had been delivered to the transportation company on 28 June 2017. The terms were DDP. By 30 June 2017, the goods had not arrived at the warehouse.

(e) On 30 June, there was goods in transit to customers, with terms DDP, amounting to $800, with an expected delivery date of July 8, 2017.

(f) On 28 June, Safety International Ltd sold $2,500 worth of vehicle airbags to a customer, with the terms of EXW. The goods were in transit and were to arrive to the customer's warehouse on 5 July.

(g) Bassett Furniture shipped office furniture to Safety International Ltd, DDP, on 29 June 2017. The goods were to be received on 3 July.

(h) By the end of financial year, Safety International Ltd, as the consignee, had goods available in their warehouse on consignment that cost $3,000.

As mentioned in the case study, Sally has not accounted for any vehicle airbags in transit. Based on the above additional information you are required to explain for each individual transaction if Sally should have or have not included the inventory in the stocktake. Explain your answer by referring to relevant accounting principles. For each individual transaction provided, has Sally understated or overstated the cost of ending inventory and cost of sales.

Attachment:- Case Study.rar