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Sir,
While trying the mock exam I came across the question re inventory at 30th September 2012 being $386,400, while some events happen in October 2012 and the question asks which value should be in the SOFP at end of September 2012.
Since the events happen in October, that is after year end, why do they effect the value of stock?
Shouldn’t the events be recorded next year if they have any effects?
Thanks
This question is testing the rule that inventory is valued at the lower of cost and net realisable value.
Although the cost of the inventory held at 31 September was $386,400, if any of the items in inventory are going to be sold for less than their cost (e.g. because they are old or are damaged) then the value of those items must be reduced.
I do explain this in my free lectures on inventory.
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