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Hello students, here is a question.
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Discuss the fundamental risk and control issues associated with fixed assets that are different from raw materials and finished goods.
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Let us discuss the answer for this.
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The first is nature of fixed assets.
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Fixed assets are long -term tangible assets that are used for the production process or administrative purpose.
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They have useful life more than one year and not intended the sale of ordinary course of business.
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Example, it includes land, building, machinery and equipment.
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In contrast, the raw materials is a finished goods.
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In short term, the assets are used for sold within a year.
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The difference in nature leads to the different risk and the control issue.
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The second is valuation.
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The fixed assets are initially recorded and their historical cost, which includes the purchase price and any cost directly attributed to bring the assets to the working condition.
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Over time, the fixed assets are subject to depreciation, which allocate the cost of an asset over its useful life.
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This can lead to complexity of valuation and the potential error of a manipulation.
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Raw materials of a finished goods are typically valued at a lower cost or net realizable value, which is a simpler valuation method.
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And the third is physical control.
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So fixed assets are usually large, immovable item that required a proper maintenance and security measure to prevent the theft, damage or unauthorized uses...