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Dear Mike,
I have been doing the practice questions for inventory chapter and faced with some confusions.
In practice question 1, when $6000 was sold at $6300, this was valued at $6000 but in question 2, $1500 was sold at $1800, this was valued at $1800.
Could you please explain the reason?
Thank you!
The difference is because in the first question, the inventory count was performed after the year end so, in the light of subsequent events, we were able to see that $6,300 worth of goods had been sold for less than cost and inventory should be valued at the lower of cost and net realisable value
In the second example, the goods sold at less than cost are not included in year end inventory because they have been sold. We are given the figure of sales in the 4 days before the year end and we need to find the cost of those sales. In the case of the sales at a loss, the cost that is included within the accountant’s records was $1,800 and that’s the figure we need to eliminate
It takes a bit of thinking about and the dates are important if you are trying for a clearer picture
OK?
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