Question

You are auditing a grain-producing company. They list as an asset $720,000 worth of grain valued at $2 per cubic foot, stored in a 30-feet diameter and 50-feet high silo. Should you be concerned?

A) Yes, the valuation method seems inaccurate
B) No, the valuation appears appropriate
C) Yes, the storage dimensions seem exaggerated
D) No, the valuation is subject to market fluctuations

Answer 1

Yes, I should be concerned. This is because the valuation method seems inaccurate. Option A is correct.

Step-by-step explanation:

The valuation of $720,000 for the grain stored in the silo raises concerns due to the questionable methodology used. Calculating the volume of a silo requires more than just the diameter and height; it necessitates considering the shape (often cylindrical) and possible irregularities. Valuing grain solely based on dimensions without accounting for actual volume or density variations within the silo may lead to an inaccurate assessment.

Furthermore, market fluctuations can affect grain prices, but the primary issue lies in the flawed valuation method rather than external market factors. Choosing option A) reflects the concern that the valuation method based on dimensions alone might not accurately represent the quantity of grain, potentially overestimating its value.

The correct answer is A) Yes, the valuation method seems inaccurate.