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hi sir i need your help
the closing inventory at cost of a company at 31 jan amounted to 284700
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 period date at 50%of their normal price .selling expenses amounted to 5% of the proceed
2. 800 skirts, which had cost $20 each.these too were found to be defective.remedial work in feb 2003 cost $5 per skirt,and selling expenses for the batch totalled $800 they were all sold for 28 each
what should the inventory value be according to ias 2 inventories after considering the above items
In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.
Inventory should be valued at the lower of cost and net realisable value.
For (1), the cost is 400 x 8 = 32000. The NRV is (400 x 75) less 5% = 28500.
So they should be valued at 28500, but at the moment they are included at cost of 32000. So the total of inventory needs reducing by the difference.For (2), the costs is 16000. The NRV is (800 x 28) – 800 – (800 x 5) = 17600.
So they should be valued at cost of 16,000.
They are already included at cost and so no adjustment to the total is needed.The free lectures on inventory will help you.
sorry i did not know
but at all time they will be include at cost
how do i know when i have to take out the cost price
for eg the 32000 i was thinking just to value it at nrv and add it on did not know i had to subtract the difference
The question says that the items have been included at cost in the total.
For item 1 that is wrong – it should be included at NRV. So we need to remove the cost and instead add in the NRV (or simply subtract the difference, which has the same effect and is faster 🙂 )
Hi sir,
Can you pls explain to y this is the correct answer, my exam kit’s print isn’t so clear.
In preparing its financial statements for the current year, a company’s closing inventory was understated by $ 300,000.
What will be the effect of this error if it remains uncorrected?
A. The current year’s profit will be overstated & next year’s profit will be understated.
B. The current year’s profit will be understated but there will be no effect on next year’s profit.
C. The current year’s profit will be understated & next year’s profit will be overstated.
D. The current year’s profit will be overstated but there will be no effect on next year’s profit.I’m extremely confused about this question, and would like to know if we were to correct it, what would the profit of current year & next year’s be.
Thx in advance for your help.
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