MOCK (TRIAL) TEST 2

Instructions
 The length of the answer should not be more than 1 page, use Times New Roman
style, 1.5 spacing and font size 12.
 Please submit your written assessment on 24 April 2020 by 5pm. Late submission will
be penalized through deduction of marks.
 You are required to answer ALL questions, and submit the ANSWER SCRIPT
using WBLE
QUESTION
Linda Berhad has completed its fiscal year on December 31,2019. The auditor, Bill has
approached the CFO, Bob, regarding the year-end receivables and inventory levels. The
following conversation takes place:
Bill: Linda Berhad have prepared ratio analyses to determine if there have been significant changes
in operations or financial position. These help us guide the audit process. This analysis indicates that
the inventory turnover has decreased from 5.1 to 2.7. I was wondering if you could explain this
change in operations.

Bob: There is little need for concern. The inventory represents computers that we were unable to sell
during the holiday season. We are confident, however, that we will able to sell these computers as
we move into next fiscal year.

Bill: What gives you this confidence?

Bob: We will increase on advertising and provide some very attractive price concession to move these
machines. We have no choice. Newer technology is already out there, and we have to unload this
inventory. But I’m little confused why are you so concern about this. Why don’t you look at our profit,
it has improved, hasn’t it? I would think that you would view that very favourably.

In your view, why is Bill concern about the inventory turnover ratios? How would you
respond to Bob’s last comment?