- 20 Marks
FA – L1 – Q54 – Inventory
Question
(A) Under IFRS Accounting Standards, IAS 2 deals with inventories. Define the following terms:
(i) Inventories
(ii) Net realisable value
(A) AfraHealth Ltd. controls its creditors’ accounts by preparing monthly creditors’ ledger control account in two parts, Upper and Lower Regions.
The following figures were available as at January 31st 20X9 when there was a difference of GH¢3,000 on the Trial Balance.
| Upper Region | GH¢ | Lower Region | GH¢ |
|---|---|---|---|
| Credit Balance b/d | 15,600 | Credit Balance b/d | 10,200 |
| Debit Balance b/d | 2,500 | Debit Balance b/d | 284 |
| Purchases | 115,200 | Purchases | 18,500 |
| Returns | 8,000 | Returns | 1,400 |
| Charges | 800 | Charges | 120 |
| Bank | 30,500 | Bank | 15,200 |
| Discount | 2,500 | Discount | 1,520 |
| Balance c/d | 1,500 | Balance c/d | 1,300 |
On 31st January, 20X9 the officer in charge of Upper Region Ledger declared GH¢89,600 while that of Lower Region declared GH¢15,016.
You are required to:
(i) Prepare creditors ledger control account for the Upper and Lower Regions respectively.
(ii) Draw any conclusion you can from the two control accounts.
Answer
(a)
(i) Inventories are assets:
- Held for sale in the ordinary course of business.
- In the process of production for such sale.
- In the form of materials or supplies to be consumed in production process or in the rendering of services.
- Goods purchased and held for resale e.g. goods held for sale by a retailer, or land and buildings held for resale.
- Finished goods produced.
- Raw materials.
- Work-in-progress.
(ii) Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.
(b)
(i)
Upper Region
Creditors Ledger Control Account – Upper Region
| 20X9 | GH¢ | 20X9 | GH¢ |
|---|---|---|---|
| 1st Jan. Bal. b/d | 2,500 | 1st Jan. Bal. b/d | 15,600 |
| 1st–31st Jan. Return | 8,000 | 1st–31st Jan. Purchases | 115,200 |
| 1st–31st Jan. Bank | 30,500 | 1st–31st Jan. Charges | 800 |
| 1st–31st Jan. Discount | 2,500 | 31st Jan. Bal. c/d | 1,500 |
| 31st Jan. Bal. c/d | 89,600 | ||
| 133,100 | 133,100 | ||
| 1st Feb. Bal. b/d | 1,500 | 1st Feb. Bal. b/d | 89,600 |
Lower Region
Creditors Ledger Control Account – Lower Region
| 20X9 | GH¢ | 20X9 | GH¢ |
|---|---|---|---|
| 1st Jan. Bal. b/d | 284 | 1st Jan. Bal. b/d | 10,200 |
| 1st–31st Jan. Return | 1,400 | 1st–31st Jan. Purchases | 18,500 |
| 1st–31st Jan. Bank | 15,200 | 1st–31st Jan. Charges | 120 |
| 1st–31st Jan. Discount | 1,520 | 31st Jan. Bal. c/d | 1,300 |
| 31st Jan. Bal. c/d | 15,016 | ||
| 33,120 | 33,120 | ||
| 1st Feb. Bal. b/d | 1,300 | 1st Feb. Bal. b/d | 15,016 |
(ii)
The control accounts for both regions show that the declared balances (GH¢89,600 for Upper Region and GH¢15,016 for Lower Region) match the calculated closing balances, indicating accurate ledger control. The trial balance difference of GH¢3,000 may relate to other accounts not covered in these control accounts.
- Tags: Control Accounts, Creditors Ledger, Financial accounting, Reconciliation, Trial Balance
- Level: Level 1
- Uploader: Samuel Duah