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October 24, 2017 at 1:51 pm
$6,000 goods that had cost $6,300
nrv of 6,000 sales was 6,000 and
here cost take 6000
but in 2nd question
$1,500 goods that had cost $1,800
cost of 1,500 sales was1,800 and
why there is a difference??
October 24, 2017 at 7:06 pm
Because inventory is valued at the lower of cost and net realisable value?
November 22, 2017 at 12:23 am
But 1 500 less than 1 800, isn’t it?
Why do we use $1 800 (11 450+730+5 700+1 800)?
November 22, 2017 at 7:53 am
When the inventory was counted, that was before the sale had been made. So, for the purposes of the valuation of the physically counted inventory, the value of those $1,500 sales would have been their cost of $1,800
Only AFTER the count and valuation would we have realised that those $1,800 goods could only be sold for $1,500
September 3, 2017 at 9:57 pm
Mike these questions r awesome. I couldnt stop laughing when I saw where I went wrong in question 4. Have the knowledge down pact but dint think for a sec to apply lower of nrv (selling price -cost ) and cost
July 6, 2017 at 7:54 am
Could you please explain why , in question by 4
Boycott’s books valued at $3.00, Major’s books valued at $12.00,
Eileen’s books at $7.00 and Delius books at $3.00
July 10, 2017 at 3:58 pm
Lower of cost and net realisable value – that says it all
July 10, 2017 at 7:12 pm
Why unit cost is deducted from selling cost per unit ? Please explain.
July 11, 2017 at 5:23 am
Which one? Boycott? It isn’t! Major? It isn’t! Eileen? It isn’t! Delius? It isn’t!
July 11, 2017 at 6:23 am
Boycott’s and Delius .
I don’t know how you got value 3.00 in Boycott’s and Delius’ s .
Could you clarify it to me please.
October 24, 2017 at 7:07 pm
Unit cost less costs of realisation?
June 1, 2017 at 12:59 pm
Could you please confirm why in question 1, you remove goods received and add back goods despatched, but in question 2, you do the reverse?
June 1, 2017 at 1:57 pm
Is it because the date of the inventory count is before the year end in one example and after the year end in the other?
Three Gold says
July 10, 2017 at 1:02 pm
Oh Mike killing questions…
They are fishing.
July 10, 2017 at 3:54 pm
They are preparing you for the real exam where it is VITAL that you read the questions ultra-carefully!
February 17, 2017 at 12:22 pm
Pls can you explain the calculations for question 3.
And why do we less goods received and add cost of goods sold in question 1 but do vice Versa in question 2?
February 17, 2017 at 4:43 pm
I cannot explain the calculations in question 3, sorry
In question 1 the inventory was not counted until AFTER the financial year end whereas in question 2 it was counted 4 days BEFORE the year end
January 2, 2017 at 10:19 pm
Question 2… Why the correct answer is $144,650 and NOT $144,950?
I think the $1,500 good that had a cost of $1,800 is what is failing here. This is my calculation:
Aggregate value $148,650
PLUS good received $15,680
LESS – 730 – 5700 – 1500 – 11,450 ….
Surely if the NRV of the goods worth $1800 @ cost was $1,500, $1,500 was the figure invoiced and $1,500 would be the figure to deduct above, and not $1,800.
January 3, 2017 at 9:04 am
No, not correct, sorry 🙁
Hindsight is a wonderful thing but, on 27 June, Merolithi wouldn’t have known that those $1,800 goods could only be sold for $1,500 so would have included the full $1,800 in the inventory count on 27th
If it HAD been known that nrv was only going to be $1,500, then the amount that would have been included in the 27 June valuation would have been just $1,500 but there’s nothing in that question to suggest that Merolithi knew so we have to assume that it wasn’t known and $1,800 is the figure to deduct
January 3, 2017 at 8:58 pm
OK thanks for your reasoning – I hadn´t made that assumption
July 30, 2016 at 1:08 pm
Question 4 :
– what do you mean by selling cost per unit ?
– Why not using the unit cost in the computation ?
– I have noticed that you are using the selling price PU minus the selling cost PU if lower than the unit cost. What that means ?
July 30, 2016 at 1:00 pm
Question 1 and 2 :
Could you please explain the difference from the treatment of the goods sold below than cost.
In Q1, you used the selling price in the computation while in Q2 you used the purchase price.
July 24, 2016 at 8:41 pm
In question 5 what do you mean by the borrowing cost? Is it the amount borrowed to purchase the inventory?
July 2, 2016 at 11:05 am
Mr Mike i dont see were you are getting the 44750 for question 1 .May you please help me
July 2, 2016 at 4:32 pm
It’s 59,250 less the three “unusual” sales which add up to 14,500
July 3, 2016 at 9:21 pm
oh i see .thank you so much
July 4, 2016 at 6:23 am
May 25, 2016 at 1:51 pm
Hi, Shouldn’t question 3 say “in which of these situations would NRV likely be less then cost” ?
July 4, 2016 at 6:25 am
I don’t believe so, Matthew. What makes you think that I have mis-worded the question?
May 21, 2016 at 4:28 pm
Very helpful tests. Thank you, Mike.
April 15, 2016 at 1:15 pm
Could you kindly explain the difference in treatment of goods sold below cost in question 1 & 2.
April 15, 2016 at 5:49 pm
Where do you think there is a difference in the treatment?
June 5, 2016 at 3:16 pm
In question 1 , we have goods sold for $6000 having a cost of $6300
In question 2, we have goods sold for $1500 having a cost of $1800
Why the difference in treatment ?
June 5, 2016 at 4:36 pm
It comes down to whether to include the loss making sale at nrv or cost as at the year end
Question 1 takes the view that the subsequent event gives better information about inventory realisable values at the year whereas question 2 has ignored the subsequent event and assumed that, even though it was sold at a loss in the new year, it still had a full value 4 days earlier
I prefer the answer to question 1 and I’m grateful to you for pointing out the inconsistency which has now been corrected
April 1, 2016 at 10:39 am
I am having trouble understanding question 4. Could you kindly assist?
April 1, 2016 at 11:50 am
Boycott’s books valued at $3.00
Major Jump’s books valued at $12.00
Eileen’s books valued at $7.00
Delius’ books valued at $2.00
4,900 @ $3.00 $14,700
5,600 @ $12.00 $67,200
3,900 @ $7.00 $27,300
600 @ $3.00 $ 1,800
Total book value $111,000
February 8, 2016 at 1:43 pm
In question 4, shouldn´t the selling costs be considered period costs, under distribution costs?
February 8, 2016 at 7:08 pm
Do you accept that inventory should be valued at “the lower of cost and net realisable value”?
Now, define for me please “net realisable value”
February 8, 2016 at 11:30 am
Hello sir , Im having difficulties understanding question 2 , I don’t seem to know how to derive at the correct answer. Mind showing me the steps? Please and thank you 🙂
February 8, 2016 at 1:38 pm
I am having the same problem. Why aren´t we valuing the goods sold with a loss at their NRV.
February 8, 2016 at 7:05 pm
The goods sold after the count should be the only problem area so I’ll only explain those
Most of the goods sold after the count were at their normal mark-up but there are three unusual ones to be deducted at selling price from $22,240 and their cost value calculated
So, from 22,240 we must deduct 730, 6270, and 1500 leaving 13,740 ordinary sales that had a cost price of 11,450
The 730 sale had a cost of 730
The 6270 sale had a cost of 5700, and
The 1500 sale had a cost of 1800
There is nothing in the question to tell us that the amount at which that 1800 is included in the 148,650 is anything other than 1800. In fact, it could be a decision by the company to sell at a loss for any number of reasons other than the inventory losing its value
Taking these three sales aggregating 8500 off 22,240 leaves 13,740. Eliminating the profit element from that leaves me with a cost of 11,450
Add on to that the cost element of the three unusual sales (730, 5700 and 1800) 8230 gives me cost of goods sold of 19,680
And now we have….
148,650 inventory per count
15,680 received after count
( 19,680) sold after count
144,650 adjusted inventory value
December 5, 2015 at 11:13 am
Hope I am not too late but I have issues to understand the second question. Why are we valueing the Inventory on a full cost Basis instead of it’s NRV?
Thanks a lot for your lessons btw
December 5, 2015 at 11:16 am
What makes you say it’s at full cost basis rather than at lower of cost and net realizable value?
shahbaz Gohar says
December 1, 2015 at 7:25 pm
In question 1 of inventories, the value of inventory we should add back is the cost of goods dispached which are as following:
1) 5,500 * 100/110 = 5000
2) 6300 cost
3) 3000 goods sold on cost.
4) remaining amount is 59,250 – 3000-6000 ( sale price)- 5500 = 44,750, when e convert it inot cost it will be 44,750 * 100/125 = 35,800
total cost to be add back is 50,100
so at the end 264,300 + 50,100 – 25,680 = 288,720
but correct answer here is 244,420, is there any mostake in my answer?
December 1, 2015 at 9:31 pm
The correct answer is NOT 244,420!
Start with 264,300
Add 5,000 (5,500 x 100/110)
Add 6,000 ( NRV of 6,300)
Add 35,800 (44,750 x 100/125)
And you arrive at an answer
December 14, 2015 at 5:17 pm
December 1, 2015 at 3:52 pm
I believe that you see whether you are correct or not as soon as you submit your guess. There’s no analysis of the answer – if you come to a question where you cannot understand how the answer is arrived at, post here and I’ll give you appropriate directions
December 1, 2015 at 3:14 pm
where can I find the analysis of answers?
April 7, 2016 at 2:16 pm
Mr. L your help sir, in question 1, NRV is 6000 and cost is 6300.In your solution you added 6000 the NRV. I treated it the same way in my calculations. In question 2, may you explain to me why you subtracted 1800 cost price instead of 1500 NRV.
Thanks in advance
April 15, 2016 at 1:08 pm
I have the same question as Keven. A management decision to sell at below cost is a situation where NRV is less than cost. Therefore why are we considering 1800 in our calculations when NRV is lower i.e. 1500.
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