- 10 Marks
FR – L2 – Q18 – Inventories
Question
Tamasi Manufacturing was formed on 1 January 20X5. The entity manufactures and sells a single product and values it on a first-in, first-out basis.
One tonne of raw material is processed into one tonne of finished goods.
The following details relate to 20X5.
Purchases of raw materials
Purchases:
Price: GH¢100,000 per tonne on 1 January, increasing to GH¢150,000 per tonne on 1 July
Import duties: GH¢10,000 per tonne
Transport from docks to factory: GH¢20,000 per tonne
Production costs
Production capacity: 1,000 tonnes of raw materials per week
Variable costs: GH¢25,000 per tonne
Fixed costs: GH¢30,000,000 per week
Sales details
Selling price: GH¢240,000 per tonne
Delivery costs to customers: GH¢8,000 per tonne
Selling costs: GH¢4,000 per tonne
Inventories at 31 December 20X5
Raw materials: 2,000 tonnes
Finished goods: 2,000 tonnes
There is a ready market for raw materials and the NRV of the raw materials is higher than its cost.
Required
Calculate and disclose the value of inventories at 31 December 20X5 in accordance with IAS 2.
Answer
Raw materials (2,000 × 180,000 (W1))
Finished goods (2,000 × 228,000 (being the lower of cost (W1) and NRV (W2))
| GH¢000 |
|---|
| 360,000 |
| 456,000 |
| 816,000 |
Workings
1 Cost per unit
| Raw materials | GH¢000 |
|---|---|
| Raw materials | 150,000 |
| Import duties | 10,000 |
| Transport costs (to present location and condition) | 20,000 |
| Total raw materials cost | 180,000 |
| Variable costs | 25,000 |
| Fixed costs (GH¢30,000,000 ÷ 1,000) (based on normal level of activity) | 30,000 |
| Total finished goods cost | 235,000 |
2 Net realisable value of finished goods
| GH¢000 | |
|---|---|
| Estimated selling price | 240,000 |
| Less: All costs necessary to make the sale (as above) | 12,000 |
| 228,000 |
- Tags: Cost Valuation, FIFO, IAS 2, Inventories, Manufacturing, Net Realisable Value
- Level: Level 2
- Uploader: Samuel Duah