The following is a copy of the auditor?s working paper for auditing inventory balances for the client Zack?s Electrical Supply. It shows the details of the net realizable value (NRV) tests.

Required

a. Why does an auditor test for NRV?

b. Find the details of the inventory items selected for NRV testing. What is a ?key item?? Explain how the auditor has decided whether or not the inventory items should be shown at NRV or cost.

c. Are any inventory items to be written down to NRV in this example? If so, by how much?

Transcribed Image Text:

Client: Zack's Electrical Supply Bell & Bowerman, LLP Prepared by: R.E.J. Date: 2/8/23 Period-end: 12/31/22 Reference F07 Reviewed by: LE.W. Date: 2/16/23 F07 - NET REALIZABLE VALUE TESTING (D] [A] [B] [B/A = C] [E] [D -E- C] Quantity Total Sample Item Number Code Description Category Selling Price Distribution in Unit Allowance Amount Inventory Value Price TM/Ref per Unit Costs? TM/Ref Variance Needed? (S000) Inventory Comments Key item $10,000 $ 5 $ 33 Purchased goods $ 27 700025 switches 2,000 SL No etc. Representative sample Purchased goods 25,000 $13,500,000 $540 SL S(121) S(3,250) 701442 routers $420 Yes Purchased goods Purchased goods 800245 fuses SL 3 440 7,000 16 28 11 No 800347 covers 288 4,200 15 SL 45 29 No etc.. Key to audit tick marks: v Agrees to supporting documentation of sales invoices posted after year-end. Comments: None (no error detected, exception noted was correctly provided for by the company).