Internal audit interview question

Internal Audit 503 views 2 replies

Jalpesh

Internal Auditor

51 Points Joined October 2013

Hello professional colleagues, Recently i appeared for an interview with a reputed CA firm for the consultant position - Internal Audit. I got through the technical round, after which the final round was conducted by the Partner where again i was tested on my technical knowledge. There was this question on which i fumbled a little which i would like to share with you and know the right answer to it. Question : If in the integrated inventory system, the standard price of an item is set at Rs.10/- and the actual price at which it is bought is Rs.12/-. What should be the accounting entry for goods receipt but pending invoice? I hope i have framed the question properly. Will highly appreciate your take on this query. Thanking you in anticipation.

Replies (2)

Kuldipsinh Jadeja

Job

357 Points Joined April 2012

The stock account is posted with the receipt value based on the standard price and the offsetting entry to the GR/IR clearing account is based on the purchase order price.

The purchase order price is different to the standard price: The variance between the goods receipt value and the purchase order value is posted as follows:

To an expense account, if the purchase order value is greater than the goods receipt value
To an revenue account, if the purchase order value is less than the goods receipt value

When Invoice is received the GR/IR clearing account is cleared on the basis of the purchase order price. The offsetting entry is posted to the vendor account based on the invoice price. The invoice price is different to the purchase order price: The variance between the purchase order value and the invoice value is posted as follows:

To an expense account, if the invoice value is greater than the purchase order value
To a revenue account, if the invoice value is less than the purchase order value