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John Moffat.
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Ashutosh770
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The closing inventory at cost of a company at 31 January 2003 amounted to $284, 700.
The following items were included at cost in the total:
1. 400 coats, which had cost $80 each and normally sold for $ 150 each. Owing to a defect in manufacture, they were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the proceeds.2. 800 skirts, which had cost $ 20 each. These too were found to be defective. Remedial work in February 2003 cost $5 per skirt, and selling expenses for the batch totalled $800. They were sold for $28 each.
What should the inventory value be according to IAS 2 Inventories after considering the above items?
A. $281,200
B. $282,800
C. $329,200
D. None of theseSir i dont know how to calculate the answer
John Moffat
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Have you watched my free lectures on the valuation of inventory? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
1. At the moment they are included in the total at their cost of $80 each. The net realisable value is 95% x (50% x $150) = $71.25 each.
Therefore the $284,700 needs reducing by 400 x (80 – 71.25).2. At the moment they are included in the total at their cost of $20 each, so a total of $16,000. The net realisable value is (800 x (28 – 5)) – 800 = $17,600. Since this is higher than the cost, they should be valued at their cost and there is therefore no adjustment needed.
Ashutosh770
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