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Provison for write down in inventories

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Provison for write down in inventories

  • This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.
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  • November 28, 2015 at 8:28 am #285852
    rashmax
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    In an accounting text manual, I note that the amount of inventories recognised as an expenses is as follows:

    In income statement
    Cost of opening inventory( $o) + purchase ( $890,000) – closing inventory before provisions for write down ( $140,000) – increase in NRV provision ($30,800) = $719,200

    In the B/S : The closing inventory is $109,200 ($140,000-$30,800)

    Disclosure: write down of inventories: $30,800

    Would the tutor mind advising what are the accounting entries involved in recording the provisions for the write-down of inventories ( why is the provision subtracted from the cost of sales)?

    November 28, 2015 at 8:47 am #285864
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54705
    • ☆☆☆☆☆

    In Paper F3 you will not have provisions for write-down in inventories.

    Inventories are valued at the lower of cost and net realisable value, and having decided on the correct valuation at the end of the period, the correct value will then be entered into the accounts.

    The methods of valuing and the entries required are covered in our free lectures on inventories.

    (Our free lectures are a complete course for paper F3 and cover everything you need to pass the exam well)

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