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Dear Sir,
Kindly advice on this Qtn.
The closing inventory at cost of a co at 31/Jan/20×3 amounted to $284,700. The following items were incl. at cost in that total.
1) 400 coats, which cost at $80 each, normally sold for $150 each, owing to a defect in manufacture, they were sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds.
2) 800 skirts, cost $20 each. These too were found defective. Remedial work in Feb 20×3 cost $5 per skirt. and selling expenses for the batch totalled $800. They were sold for $28 each.
What sld the inventory value be according to IAS2 inventories after considering the above items?for 1) the answer taking $284,700 – $32,000 + $75×95% x 400. I don quite get it, since the coats were sold after reporting date, why we need to take into consideration of NRV at the reporting date?
Thank you!
Basically, it comes down to the fact that the reduced selling price obtained was caused by the manufacturing error which of course existed at the reporting date.Since this meant the net realizable value was less than cost of coats so they should only have been reported at this value on statement of financial position.If say for some reason there was a massive change in fashion tastes AFTER the reporting date then there would not have to be an adjustment to inventory value on statement of financial position on closing date.I can’t really pay much more as I foot have question in front of me at this time.
P.S. I am not a tutor.If you wish a tutor to answer your questions you should post on the ask the tutor forum.The other forums are primarily designed for students to help each other and are not checked upon as often by tutors as their own forums.Regardless I hope I have been of some help.
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