[Shayan Javed]

why are we able to solve the past papers more easily then attempting the actual paper? 🙂

[Shayan Javed]

total cost of inventory is 41875, from which items worth 1960 are damaged. So the remaining cost of inventory would be 39915.
now comes the issue with inventory of 1960.
Here is the concept of lower of cost and nrv
cost is given, which is 1960
but its damaged, and there’s a possibility that its cost might nt be recovered in current condition.
now we’ll calculate its nrv.
which is:
estimated to cost to sell: 1200
– estimated cost to repair: 360
= 840

cost: 1960 ~ Nrv: 840
so this inventory will be reported at 840, because nrv is lower than cost.

total cost of inventory will now be:
39915 + 840
= 40755

Answer: 🙂

[Shayan Javed]

For Services:
Of course, there would be no inventory. So there will be no need of dealing with stock measurements. Cost of sales would straightly be the cost of providing services.

For Nutrition Products:
in this case comes the concern of stocks. (How many products we bought + products which were in the closing stock of previous period – products which aren’t sold) x cost of products = cost of sales

you may incorporate the concept of lower of cost or nrv, but that would make this understanding far more complex.

for a service providing firm as you mentioned, there would be variety of stocks + services, each will be dealt separately, but amalgamated in one ‘cost of sales’ head

[Shayan Javed]

on 14th Jan, you sent a cheque for 76294, right. But from this amount, 25431 relates to your period, which should obviously be expense out as a rent, and the remaining amount of 50863 not relates to your period, and for which you have paid in advance, so that would be your prepaid expense and be shown as an asset in your balance sheet.

then for each subsequent period, you would expense the amount relating to your period from the prepaid expense account.

i hope that matter would be fully clarified now.

[Shayan Javed]

The entries would be:

at 14th Jan:
Dr. rent exp 25431
Dr. prepaid expense 50863
Cr. Bank A/c 76294

14th Feb:
Dr. rent exp. 25431
Cr. Prepaid expense 25431

14th March:
Dr. rent exp. 25432
Cr. Prepaid expense 25432

14th April:
Dr. rent exp 25431
Dr. prepaid expense 50863
Cr. Bank A/c 76294

14th May:
Dr. rent exp. 25431
Cr. Prepaid expense 25431

14th June:
Dr. rent exp. 25432
Cr. Prepaid expense 25432

14th July:
Dr. rent exp 25431
Dr. prepaid expense 50863
Cr. Bank A/c 76294

14th August:
Dr. rent exp. 25431
Cr. Prepaid expense 25431

14th Sept.:
Dr. rent exp. 25432
Cr. Prepaid expense 25432

[Shayan Javed]

Thanks for posting such a useful link.

[Author]

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