Title: FR – L2 – Q16 – Inventories

Calculate inventory value at 31 Dec using FIFO, NRV, and IAS 2 for Bolga Limited.

Question

Bolga Limited has the following purchases and sales of a particular product line.

	Units purchased	Purchase price per unit	Units sold	Selling price per unit
		GH₵’000		GH₵’000
2 December	100	500	60	530
16 December	60	503	80	528
30 December	70	506	50	524
14 January	50	509	70	524
28 January	80	512	50	520
11 February	40	515	40	520

At 31 December the physical inventory was 150 units. The cost of inventories is determined on a FIFO basis. Selling and distribution costs amount to 5% of selling price and general administration expenses amount to 7% of selling price.

Required
(a) State any three reasons why the net realisable value of inventory may be less than cost.

(b) Calculate to the nearest GH₵’000 the value of inventory at 31 December
(i) at cost
(ii) at net realisable value
(iii) at the amount to be included in the financial statements in accordance with IAS 2

Answer

Answer:
(a) Reasons why NRV may be less than cost

Due to damage
Due to obsolescence (wholly or in part)
Due to declining selling prices

(b) (i) Cost on a FIFO basis

Date purchased	Units	Per unit GH₵’000	Cost GH₵’000
30 December	70	506	35,420
16 December	60	503	30,180
2 December	20	500	10,000
	150		75,600

(ii) NRV
NRV = selling price less selling and distribution costs = selling price – (selling price × 5%)

Date sold	Units	Per unit NRV GH₵’000	NRV GH₵’000
14 January	70	497.80	34,846
28 January	50	495.90	24,795
11 February	30	494.00	14,820
	150		74,461

(iii) Amount to be included in financial statements
Lower of cost and net realisable value: GH₵74,461,000

Tags: Cost Valuation, FIFO, Financial Statements, IAS 2, Inventories, Net Realisable Value
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

Uploader: Samuel Duah