Mighty Tools Hardware runs a network of small hardware retail outlets across the state. All sales are made for cash or on credit card and processed through electronic tills. A wide range of goods are stocked by the stores, meaning that the business deals with a large number of suppliers. All goods are purchased on credit with varying terms, depending on the supplier. Invoices are paid by cheque after a package of documents is collated and approved for payment. Ordering of goods and subsequent payments are processed by the central office with delivery direct from supplier to the stores — no central warehouse is used. Mighty Tools uses a perpetual stock system and conducts test counts at regular periods throughout the year. Required: (a) What controls should exist for inventory movements at the local store level and the central office? (150-180 words) (b) Explain how the stocktake for Mighty Tools Hardware should be audited. What details are most important? (230-250 words)
Mighty Tools Hardware runs a network of small hardware retail outlets across the state. All sales
are made for cash or on credit card and processed through electronic tills. A wide range of goods
are stocked by the stores, meaning that the business deals with a large number of suppliers. All
goods are purchased on credit with varying terms, depending on the supplier. Invoices are paid
by cheque after a package of documents is collated and approved for payment. Ordering of goods
and subsequent payments are processed by the central office with delivery direct from supplier
to the stores — no central warehouse is used. Mighty Tools uses a perpetual stock system and
conducts test counts at regular periods throughout the year.
Required:
(a) What controls should exist for inventory movements at the local store level and the central
office? (150-180 words)
(b) Explain how the stocktake for Mighty Tools Hardware should be audited. What details are
most important? (230-250 words)
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