May 2, 2012 at 7:29 pm #52464
The closing inventory at cost of a company at 31 January 2003 amounted to $284, 700.
The following items were included at cost in the total:
1. 400 coats, which had cost $80 each and normally sold for $ 150 each. Owing to a defect in manufacture, they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds.
2. 800 skirts, which had cost $ 20 each. These too were found to be defective. Remedial work in February 2003 cost $5 per skirt, and selling expenses for the batch totalled $800. They were sold for $28 each.
What should the inventory value be according to IAS 2 Inventories after considering the above items?
D. None of theseMay 2, 2012 at 7:48 pm #97034
inventory value is lower of cost and NRV.
NRV(net realisable value)=95%*400*75(95% bcoz we deduct selling expense 5%)
inventory value is lower of Cost and NRV.
here, NRV is lower than cost. so inventory value becomes 28,500
here cost is lower, so inventory is 16,000.
closing value=284,700-32,000+28,500=281,200.ans.May 3, 2012 at 2:49 am #97035
Not really understanding, could you explain the NRV part for me, will be appreciated.May 3, 2012 at 5:51 am #97036
NRV=proceeds -selling expense=30,000-1,500=28,500
remedial work costs=5*800=4,000
NRV=proceeds-remedial work costs-selling expense
post ur doubts if any.May 4, 2012 at 5:16 pm #97037
At 30 September 2003 the closing inventory of a company amounted to $386,400.
The following items were included in this total at cost:
1,000 items which had cost $18 each. These items were all sold in October 2003 for $15 with selling expenses of $800.
Five items which had been in inventory since 19W3, when they were purchased for $100 each, sold in October 203 for $100 each, net of selling expenses.
What figure should appear in the companies statement of financial position at 30 September 2003 for inventory?
A. $382, 600
C. $387, 100
D. $400,600May 5, 2012 at 1:38 am #97038
inventory value = 14,200.
just check the ans.May 5, 2012 at 4:49 am #97039
For item 2, it should have been sold in October 2003 for $1000 each, net of selling price.May 8, 2012 at 8:02 am #97040
Vipin, For the first qn, ur final equation is closing value=284,700-32,000+28,500=281,200.ans.
why r u minusing 32000 and adding 28500.May 8, 2012 at 10:38 pm #97041
previous entry was 32,000 and the new entry is 28,500.
it is a logic, erase the previous entry, for that i deduct 32,000.
write the new entry, for that i added 28,500.May 8, 2012 at 10:39 pm #97042May 13, 2012 at 2:52 pm #97043
You should correct your inventory if your net realisable value is lower than cost.
In this case you have inventory accounted at $100 each item, and you sell it at higher price ($1000 each item), it means that your inventory in Balance sheet is OK (it isn’t overstated) and you don’t need to correct your inventory.June 22, 2012 at 5:55 pm #97044
umm it all comes from an accounting concept called PRUDENCE which means being cautious about fore-loss and not taking account of fore-gain, that is deduct the loss you can perceive but can not take account of the future profit until it is realised…..therefore we go with the net realisable value and the cost, if the net realisable value is less than cost it means there is a loss, so we take account of the loss and deduct it from assets id est closing inventory a current asset
if you go by your question the 400 coats are sold at 80 each id est 32000 for the lot
and can be sold at 75 each that is (400*75)=30,000 plus there is an expense which directly relates to selling, we call it selling expense of 5% that is (30000*5%)=1500 so net realizable value is (30,000-1500)=28500
now compare it with your cost u get a loss of 3500 simply deduct it from the closing inventoryJune 22, 2012 at 6:02 pm #97045
and for item 2 your asking it should have been 1000 instead of 100 each it again goes with the prudence concept and future gains cannot be antipated until realised so no change for that cost (5*100)=500
net realisable value (5*1000)=5000 furure gain is ignored u can later add it to profit in the income statement but not until u sold it, but future losses which are more likely than not should be taken into account now as a lossJuly 4, 2012 at 11:09 am #97048
Those are great answers. You have helped me understand inventory better. Thanks#July 4, 2012 at 11:11 am #97049July 4, 2012 at 11:12 am #97050
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