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At 30 September 2012, the closing inventory of a company accounted to $386,400.
The following items were included in this total cost, at cost”
1. 1000 items which had cost $18 each. These items were all sold in October 2012 for $15 each, with selling expenses of $800.
2. 5 items which had been in inventory since 1978 when they had been purchased for $100 each, were sold in October 2012 for $1000 each net of selling expense.What figure for inventory should appear in the company’s statement of financial position September 2012?
[ the amount of closing inventory is always the figure to appear in the statement of financial position or…]
To John Sir and Shandha:
I hope you don’t mind me answering these questions 🙂According to the Fundamental principle of IAS 2, Inventories are required to be stated at the lower of cost and net realisable value (NRV)
So, in the 2 points we need to calculate and check which one is lower, cost or NRV.
1.
– cost: 1,000 x 18 = 18,000
– NRV = Selling price minus Selling expenses. Hence 1000 x 15 = 15,000 minus 800 selling expense giving NRV of 14,200. So we would need to value this set of inventory at 14,200 instead of the already valued amount of 18,000.2. In this point the cost of 100 is of course lower that the price of 1,000 net of selling expense (i.e NRV). So no adjustment is required for those 5 items. The purchase and selling dates are irrelevant here.I mean even thought those items were purchased some 34 years ago, their cost is still 100 and NRV is 1000.
So the answer will be 386,400 – 18,000 + 14,200 = 382,600.
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