Question

Barrick Gold Corporation, with headquarters in Toronto, Canada, is the world's most profitable and largest gold mining company outside South Africa. Part of the key to Barrick's success has been due to its ability to maintain cash flow while improving production and increasing its reserves of gold-containing property. In the most recent year, Barrick achieved record growth in cash flow, production, and reserves.

The company maintains an aggressive policy of developing previously identified target areas that have the possibility of a large amount of gold ore, and that have not been previously developed. Barrick limits the riskiness of this development by choosing only properties that are located in politically stable regions, and by the company's use of internally generated funds, rather than debt, to finance growth.

Barrick's inventories are as follows.

Barrick Gold Corporation
Inventories (in millions, US dollars)
Current
Gold in process	$133
Mine operating supplies	82
	$215
Non-current (included in Other assets)
Ore in stockpiles	$65

Instructions

(a)  

Why do you think that there are no finished goods inventories? Why do you think the raw material, ore in stockpiles, is considered to be a non-current asset?

(b)  

Consider that Barrick has no finished goods inventories. What journal entries are made to record a sale?

(c)  

Suppose that gold bullion that cost $1.8 million to produce was sold for $2.4 million. The journal entry was made to record the sale, but no entry was made to remove the gold from the gold in process inventory. How would this error affect the following?

Balance Sheet		Income Statement
Inventory	?	Cost of goods sold	?
Retained earnings	?	Net income	?
Accounts payable	?
Working capital	?
Current ratio	?

Answer 1

a). No Finished goods Inventories because all finished goods sold at the end of period.

Raw material and ore in stockpiles considered non current asset, because there conversion period

more then one year. Conversion in finished goods.

b) Journal Entry :-

Perticulars	Debit($)	Credit($)
Accounts Receivable A/c Dr.	------------
To Sales Revenue A/c		-----------

c). Affect in Balance Sheet :-

Inventory	Overvalued
Retained Earnings	Overvalued
Accounts Payable	No Effect
Working Capital	Overvalued due to Overvalued Inventory
Current Ratio	Overvalued due to Overvalued Inventory

Affect In Income Statement :-

Cost of Goods Sold	Undervalued
Net Income	Overvalued