A Ltd. is engaged in manufacturing operations and has significant Work-in-Progress (WIP) inventory at year end. During the audit, the auditor…

CA Intermediate · Auditing and Ethics · MTP · September 2026
A Ltd. is engaged in manufacturing operations and has significant Work-in-Progress (WIP) inventory at year end. During the audit, the auditor evaluates measurement of stages of production, basis of estimates, inclusion of cost elements, allocation of overheads, and treatment of abnormal wastage. Which of the following audit observations indicates inappropriate valuation of Work-in-Progress?
(A) (a) Various stages of production/value additions are measured and where estimates are made, the basis for such estimates is understood.
(B) (b) Overheads included in WIP are based on a method consistent with costing and financial data maintained by the entity.
(C) (c) Auditor has ascertained what elements of cost are included in WIP.
(D) (d) Material costs included in WIP include abnormal wastage factors.

Suggested Answer and Working Notes:

Correct Answer: Option (D)

(d) Material costs included in WIP include abnormal wastage factors.

Topics: Audit of Items of Financial Statements

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