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I have question like this:
The closing inventory of X amounted to $116,400 excluding the following two inventory line:
1. 400 items which had cost $4 each. All were sold after the reporting period for $3 each, with selling expenses of $200 for the batch.
2. 200 different items which had cost $30 each. These items were found to be defective at the end of the reporting period. Rectification work after the statement of financial position amounted to $1,200 after which they were sold for $35, with selling expense totalling $300.Which of the following total figures should appear in the statement of financial position of X for inventory?
I want to know in this question is that what does the inventory excluding mean? Because i did it as you asked me for, i was wrong and i don’t know how to do it exactly.
Inventory is valued at the lower of cost and the net realisable value (you really must watch the free lecture on inventories!).
In the first case, the cost was $1,600. The net realisable value is ((400 x $3) – $200) = $1,000. So these should be added at $1,000.
In the second case, the cost was $6,000. The net realisable value is (200 x $35) – $1,200 – $300 = $5,500. So these should be added in at $5,500
If the current valuation excludes these, it means that at the moment it does not include either of them. That it why you need to add them on (at the correct values).
I don’t know what you mean.
Inventory should include all items of inventory. The original figure given does not include these two items – they should be included and so they need adding on.
Kindly help with this question
The inventory value for the financial statements of Global Inc for the year ended 30 June 20X3 was based on a inventory count on 7 July 20X3, which gave a total inventory value of $950,000.
Between 30 June and 7 July 20X6, the following transactions took place
Purchase of goods. $11,750
Sale of goods (mark up on cost at 15%) $14,950
Goods returned by Global Inc to supplier. $1500What figure should be included in the financial statement of inventories on 30 June 20×3
A$952,750
B $949,750
C $926,750
D $958,95I understand that the new purchase must be deducted and returns should be added however I don’t get the need to add the cost of sale 13,000 or what to do with it. According to the answer given, cost of sales was added back and correct answer is A. Please explain the rational behind it.
Thank you for your time.
It is because inventory the inventory is valued at cost and so we need to add back the cost of what was sold (because it was no longer there on 7 July, but it was there on 30 June)
The $1,200 is the cost of getting them ready for sale and is therefore subtracted in arriving at the enter realisable value.
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.
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