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inventory

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › inventory

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.
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  • September 10, 2014 at 5:50 pm #194588
    XXY
    Member
    • Topics: 8
    • Replies: 4
    • ☆

    Hi sir.
    At 30 september 20X3 the closing inventory of a company amounted to $386,400.
    The following items were included in this total at cost:
    1. 1,000 items which had cost $18 each. These items were all sold in October 20X3 for $15 each, with selling expenses of $800.
    2. Five items which had been in inventory since 19X3, when they were purchased for $100 each, sold in October 20X3 for $1,000 each, net of selling expenses.
    What figure should appear in the company’s statement of financial position at 30 September 20X3 for inventory?
    A) $382,600
    B) $384,200
    C) $387,100
    D) $400,600

    September 10, 2014 at 8:49 pm #194607
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You will know that inventory must be valued at the lower of cost and net realisable value.

    Items in 1, cost in total $18,000; the NRV is 15000 – 800 = $14,200. So they should be valued at NRV.
    Since at the moment they have been included at cost, the value needs reducing by the difference of 18000 – 14200 = $3800.

    Items in 2, cost 500; the NRV is 5,000. So it is correct for them to have been included at cost, and no adjustment is necessary.

    So the only adjustment necessary to the original value of inventory is to reduce it by $3,800.

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