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Answered 2 days AfterApr 03, 2022


Sandeep answered on Apr 05 2022
15 Votes
Ans a)
Inherent Risk for Inventories for Cathy’s computer:
Inherent risks for inventory for Cathy’s Computers include:
1. Likelihood of rapid obsolescence of computer hardware and accessories – risk of inco
Valuation of obsolete product.
2. Foreign exchange transactions – are contracts written in US$, A$, etc., are the transactions
Hedged against adverse movements in exchange rates? – leading to difficulty ascertaining
Cost of purchase and inco
ect creditor liability.
3. Competition from aggressive discounters, risk that inventory will not be held on hand to meet
Fluctuating sales, risk that inventory will be unsold because of competition – increasing risk
Of obsolescence, valuation problems.
1. Strong possibility of Computer hardware and accessories being rendered obsolete and there also exist big risk of inaccurate estimation of obsolete product for accounting purposes.
2. Company is trading with multiple countries and in multi-cu
encies so there exist risk of Forex gain/loss unless hedged against unfavourable movements in exchange rates.
3. High volatility in exchange rates can lead problem of accounting as per GAAP standard in terms of ascertaining of acquisition cost and thus inco
ect estimate of Creditor’s liability.
4. Frequents swing in Fx rates can also lead to forcing the company to reconsider the inventory method of accounting (i.e. LIFE, FIFO, Weighted average etc.) to hit on Income and Profit.
5. Company is bound to face strong challenge from its rival and their discounting scheme (online retailers) in form of understocking or over stocking of items to cope with the problem of fluctuating sales.
6. Overstocking and Understocking can leave either more inventory in hands or in warehouse or unable to meet the increasing demand thus losing out on prospective business opportunity. Further leading to risk of obsolescence and valuation issue of inventory.
7. Increased risk that supplier may unable to furnish all items listed in PO may lead to hitting the production lines , lead to confusion between Importers and exporting suppliers with regard to rates , stock not received and payment ageing .
8. Export shipments involves interacting with multiple Transport, shipment, Logistical...

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