CA Inter P5 · Chapter 4 · Question 11 of 14
The auditor tests a sample of inventory items with a book value of Rs. 40 lakh and finds an audited value of Rs. 38 lakh. Total inventory book value is Rs. 5 crore. Using ratio estimation, the projected misstatement for the population is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Rs. 25 lakh overstatement
Explanation
Misstatement in sample = Rs. 40 lakh - Rs. 38 lakh = Rs. 2 lakh, a ratio of 2/40 = 5%. Projected misstatement = 5% x Rs. 500 lakh = Rs. 25 lakh overstatement. Rs. 2 lakh ignores projection required by SA 530, Rs. 20 lakh uses 4%, and Rs. 50 lakh uses 10%.
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