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F7 Chapter 12 Questions

VIVA

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  1. question 1
    $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??

      • 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

        OK?

  2. 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

  3. 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
    Thanks

  4. Hi Mike,
    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?
    Thanks

  5. Hi
    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?
    Thanks

  6. Hi.

    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 ….

    EQUALS 144,950

    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.

    Correct?

    • No, not correct, sorry 馃檨

      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

      OK?

  7. Hi Sir,

    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 ?

    Thanks
    Daniel.

  8. Hi Sir,
    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.
    PLease explain.

      • 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 ?

      • 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

        thanks 馃檪

    • 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

      OK?

      • 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

        OK?

  18. 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?

  19. 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

    • 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

      • 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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