AZO Co. currently uses a periodic inventory system. Mr. Sohaim, the owner, is considering the purchase of a computer system that would make it feasible to switch to a perpetual inventory system. Mr. Hasan is unhappy with the periodic inventory system because it does not provide timely information on inventory levels. Mr. Hasan has noticed on several occasions that the store runs out of good-selling items, while too many poor-selling items are on hand. Mr. Hasan is also concerned about lost sales while a physical inventory is being taken. AZO Co. currently takes a physical inventory twice a year. To minimize distractions, the store is closed on the day inventory is taken. Mr. Hasan believes that closing the store is the only way to get an accurate inventory count. 1. Will switching to a perpetual inventory system strengthen AZO Co.’s control over inventory items? 2. Will switching to a perpetual inventory system eliminate the need for a physical inventory count? 3. How IAS-2 is applicable here?
AZO Co. currently uses a periodic inventory system. Mr. Sohaim, the owner, is considering
the purchase of a computer system that would make it feasible to switch to a perpetual
inventory system. Mr. Hasan is unhappy with the periodic inventory system because it does
not provide timely information on inventory levels. Mr. Hasan has noticed on several
occasions that the store runs out of good-selling items, while too many poor-selling items
are on hand. Mr. Hasan is also concerned about lost sales while a physical inventory is being
taken. AZO Co. currently takes a physical inventory twice a year. To minimize distractions,
the store is closed on the day inventory is taken. Mr. Hasan believes that closing the store is
the only way to get an accurate inventory count.
1. Will switching to a perpetual inventory system strengthen AZO Co.’s control over
inventory items?
2. Will switching to a perpetual inventory system eliminate the need for a physical
inventory count?
3. How IAS-2 is applicable here?
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