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Hello, I’m studying at home paper F7 with BPP book.
In one of the examples – Hewlett (no 8 page 425) there is note that, closing inventories were counted and amounted to 388M at cost. However, shortly after the year end out-of-date inventories with a cost of 21M were sold for 14M’.
Personally, I would not take that note into account when composing a trial balance and working on financial statements as it happened ‘shortly after the year end’, so it would impact current and not last year’s reporting.
However, in the solution part (p. 460) this is taken into account in closing inventories calculation.
Why? How’s that possible? Is it to reflect the change in costs of those ‘out-of-date’ inventories?
thanks for your support in understanding that nonsense,
KatarzynaCurrent assets should be valued at the lower of cost and net realisable value. The net realisable value of that inventory ($14m) was clearly less than cost ($21m) so the lower value should be used
It’s an example of an adjusting subsequent event where the sale fixes with greater certainty an amount or estimate as at the date of the statement of financial position
OK?
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