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Closing inventory at 31 January 2013 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 prices. 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 Feb 2013 cost $5 per skirt, and selling expenses for the batch totalled $800.They were sold for $28 each.
What should be the value of inventory be according to IAS 2 after considering the above items?
The answer in the BPP revision kit is A $281,200. How did they reach this answer? The workings and explanations in the book is a bit difficult to understand.
The coats have a net realisable value of 75 – (5% x 75) = 71.25
The is less that the cost and therefore the difference needs subtracting from the 284,700The skirts have a net realisable value of (800 x (28 – 5)) – 800 = 17,600
This is great than the cost of 800 x $20 and therefore the 284,700 does not need adjusting.1.”The is less that the cost and therefore the difference needs subtracting from the 284,700″
What do you mean by that and which difference are you talking about?2.”This is great than the cost of 800 x $20 and therefore the 284,700 does not need adjusting”
What do you mean by that sentence?
Have you watched the lectures?
We value inventory at the lower of cost and net realisable value.
At the moment they have all been valued at cost and the total only needs adjusting if the net realisable value of either of them is less than the cost.
Dear sir,
1.for closing inventory; more closing inventory means more profit
What about opening inventory? What happens when there is more opening inventory and what will be it’s effects on profits?2. What is a continuous inventory system?
1. If opening inventory is higher then cost of sales will be higher and profit lower.
2. See paragraph 6 of the lecture notes chapter on inventories.
They are written in the free lecture notes!
Are you watching the lectures and reading the notes? If you are not, then you really cannot expect me to answer your questions.
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