Question

The following transactions were recorded by the trainee Accountant:

1. Inventory was recognized at the cost even when the net realizable value was lower than the cost.

2. The Grant promised by the govt in order to reduce the impact of Covid-19 was recorded immediately on the statement of Financial position even before it became receiveable.

3. The company recorded a contingent Asset in 2019 on the SOFP as current assets. However, when the assets became receiveable it was recorded as a non-current asset.

Required :

as a senior Accountant justify the trainee's Accountant treatment of the above transactions if they are correct or not.

Answer 1

1. As per accounting slandered Valuation of Inventory, Inventory should be recorded at cost or Net realizable value which ever is less

In current situation accountant has recorded it cost but the NRV is less hence inventory has to be recorded at NRV

2. As per Provisions of Revenue recognition no income should be accounted unless and until they becomes receivable in current situation accountant has recorded grant before the grant become receivable hence need to be rectified

3. Contingent liabilities are to be recorded in notes to accounts unless and until they materialized. Hence accountant needs to rectify books on account by eliminating entry of contingent and make a note of that in notes to the accountant