Auditing and Assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

Express your opinion in the following cases:
M/s Trade Link Ltd. incurred a heavy loss of finished stock of goods due to heavy rain in its store. The management treated the loss as cost of goods and charged it to the cost of goods sold on the ground that ultimately it is cost for the company. Give your opinion as a financial auditor for the treatment made the company for such loss.
Answer
The loss incurred heavy rain seems to be the nature of abnormal loss. The accounting treatment made management to treat such loss as cost of goods and disclosing under cost of goods sold is not correct. The disclosure of the nature and amount of such abnormal item may be made on the face of the income statement, or when this disclosure is made in the notes to the financial statements, the total amount of all abnormal loss is disclosed on the face of the income statement.



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