Page 63 - Accountancy_F5

Items Costs Selling price Packaging costs

TZS TZS TZS
X 12,500 15,000 3,000
X 23,000 30,500 5,500
Y 17,500 19,000 1,500
FOR ONLINE READING ONLY
Y 24,500 35,500 5,500
Z 13,750 18,000 2,000
Z 26,500 42,500 6,250
117,750 160,500 23,750
LANGUAGE EDITING
Required: Compute the value of inventory held by the firm (use category method).

Inventory error
An inventory error occurs when the actual quantity of available inventory differs from
the recorded quantity. This discrepancy can negatively impact financial statements,
as it may lead to incorrect computations of the cost of sales, closing inventory, and
consequently, the reported profit or loss. The following section considers the causes,
key factors or situations that result in inventory errors or discrepancies as well as the
different strategies to be employed to minimise errors.

Underlying factors contributing to inventory discrepancies
Inventory errors can arise due to various factors or causes such as the following:
Theft: Reduces the quantity of items in the store, causing discrepancies between the
store’s records and actual inventory.

Unreported product damage: If damaged products are removed from the store without
being reported, the system’s recorded amount will differ from the actual items in the store.

Human error: Mistakes during labelling, counting, and recording of items in the store
can cause discrepancies between the records and actual items available.
Misplaced inventory (location error): This occurs when items are received in store and
then placed in the wrong shelf or bin. Customers may also cause this if they pick up
products and place them in a different location.

Mismanagement of returns: Inventories may be returned to the store due to various
reasons. In the case of returns, they should be recorded properly. Failure to do so, may
result in inventories discrepancies.

Inefficient handling and storage: Poor handling and storage practices can lead to damage
or loss of inventory, which can cause discrepancies in the inventory records.

Student’s Book Form Five
50

23/06/2024 17:34
ACCOUNTANCY_DUMMY_23 JUNE.indd 50
ACCOUNTANCY_DUMMY_23 JUNE.indd 50 23/06/2024 17:34