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Calculate the performance materiality level for inventory

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Question - Draft financial statements for ABC Ltd show the following:

Revenue: Rs. 200m

Pre-tax profit: Rs. 16m

Inventory: Rs. 8m

Trade payables: Rs. 6m

The auditor has set materiality level for the financial statements as a whole at 0.5% of revenue. He has assessed the risk of material misstatement for individual account balances as follows:

Inventory = low risk of material misstatement

Trade payables = high risk of material misstatement

The risk-based weightings applied to overall materiality are 90% factor for low risk balances, 75% for moderate risk balances and 65% for high risk balances.

Required - Calculate the performance materiality level for inventory and trade payables.

Reference no: EM132595539

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