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Dear Mr Little,
From your lectures – which are great, thank you – you define three scenarios where I have a question in Scenario 2.
1 – Give notice and sell inmediately – Loss for 1,350 OK
2 – Give notice and make dresses – Here´s where my question arises
3 – Give notice and cancel contract – Loss of 1,400OKFor Scenario 2 your calculations are:
Costs:
900x2x7= 12,600
900/3x2x4= 2,400
S.P:
900/3x2x22= 13,200Loss: 15,000-13,200 = 1,800.
Should the S.P be $30 for one month and $22 for the next? F.S. are dated 31.12.09. The M.V per dress to $22 falls in December, therefore in November (first month of notice) the M.V. per dress is still 30.
S.P:
900/3×30 (November)= 9,000
900/3×22 (December)= 6,600
Total 15,600 – 15,000 = Profit 600.
From the above there is no probable outflow of economic resources and therefore no provision should be reflected in F.S.??Thanks very much and kind regards,
Isabel
REALLY!!!!????
Well, I have never noticed that – and nor has anyone else! I’ll need to check this out and amend it. The intention was that the sale price per dress should apply straight away!
If you’re correct (and I’m not going to check it immediately but I shall do sometime within the next few months when I’m getting ready to rerecord some lectures) then thank you for pointing out the error of my ways!
I thought that the two different prices for making a dress and the two months notice was a trick in the question to get one of the options with a profit..!
In the presumption of the solution being correct (subject to you to have a look at the example in the near future) would the afirmation of “no outflow of economic resources would be made therefore no provision should be reflected” be correct?
Thank you again and regards,
Isabel
If it’s only a possibility of a loss (and a possibility of a profit) then it would not be appropriate to make a provision.
Does that answer your question?
I’ve just looked at the notes …… why do you think that November is “now”?
How can it be now? How can she know in November that “In December the market price of dresses fell to $22”
I’m afraid that you have wildly misinterpreted the question – sorry!
Yes.. I see what you mean. I misinterpreted the question 🙁
My fault.. Sorry about that and thank you again for your answer.
Kind regards,
Isabel
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