Net Realisable Value

FR – L2 – Q20 – Inventories

Compute cost of sales and inventory for Teshi Trading Limited using FIFO and weighted average cost methods for January 20X6.

Question

Summary Report of Changes for Copyright Purposes

To comply with copyright requirements while preserving the educational value of the questions and answers, the following subtle changes were made to names of individuals, companies, and locations in Question 20:

Company Name Changes:
- “Teshie Trading Corporation” was changed to “Teshi Trading Limited”.
- “TTC” (abbreviation for Teshie Trading Corporation) was changed to “TTL” (abbreviation for Teshi Trading Limited).
Location Changes:
- No specific location names were altered in Question 20, as the original question did not reference specific geographic locations beyond the context of Ghana, which was retained as it aligns with the Institute of Chartered Accountants, Ghana.
Individual Name Changes:
- No individual names were present in Question 20, so no changes were made in this regard.
Currency and Context:
- The currency “GH₵” and all numerical values were retained exactly as in the original to maintain the integrity of the financial calculations.
- The context, structure, and intent of the question and answer were preserved, with only the company name altered to avoid direct replication.

These changes ensure the question and answer remain educationally equivalent while addressing copyright concerns. The tables, financial data, and all other content were reproduced exactly as in the original attachment, except for the noted name changes.

Question Structure

====================================================================== Question Title: FR – L2 – Q20a – Inventories
Level: Level 2
Professional Bodies: Institute of Chartered Accountants, Ghana (ICAG)
Programs: Professional Program
Subjects: Financial Reporting
Topics: Financial Reporting Standards and Their Applications
Total Marks: 9
Question Tags: Inventories, FIFO, Weighted Average Cost, Cost of Sales, Inventory Valuation, IAS 2
Question Short Summary: Compute cost of sales and inventory for Teshi Trading Limited using FIFO and weighted average cost methods for January 20X6.

Question:
(a) On 1 January 20X6, Teshi Trading Limited held 300 units of an item of finished goods inventory. These were valued at GH₵22 each. During January 20X6, the batches of finished goods were received into store from the production department, as follows:

Date	Units Received	Production cost per unit
10-Jan	400	GH₵23
20-Jan	400	GH₵25
25-Jan	400	GH₵26

Goods sold out of the inventory during January 20X6 were as follows:

Date	Units sold	Sale price per unit
14-Jan	500	GH₵31
21-Jan	500	GH₵33
28-Jan	100	GH₵32

Required
Compute the cost of sales and inventory at 31 January 20X6, applying the following basis of inventory valuation:
(i) FIFO
(ii) Weighted Average Cost (Average is updated after every transaction).

(b) The cost of inventory of Teshi Trading Limited (TTL) based on inventory count conducted on 17 January 20X6 was GH₵675,000. These included goods costing GH₵15,000 which were purchased in December 20X5 and have a net realisable value of GH₵12,000.
During the period between 31 December 20X5 and 17 January 20X6, the following transactions took place:
(i) Value of goods purchased amounted to GH₵155,710.
(ii) Sale of goods amounted to GH₵250,000. TTL normally sells goods at a mark-up of 25% of cost. However, 20% of the sales were made at a discount of 8% of the normal selling price.
(iii) Goods costing GH₵1,990 were returned to a supplier.
(iv) Goods sold to a customer on 4 January 20X6 were returned on 15 January 20X6.

Required
Calculate the value of inventories that should be reported in the financial statements of TTL as at 31 December 20X5.

(c) Which of the following items may be included in computing the value of inventory of finished goods manufactured by a business:

(i) raw materials

(ii) foremen’s salaries

(iii) carriage inwards

(iv) carriage outwards

(v) plant depreciation

(vi) cost of storage of finished goods

(vii) abnormal waste of materials

(viii) salesmen’s commission

(d) What will be the effect of the following on cost of sales, profit, and inventory:

(i) if in times of rising prices, the valuation of inventory is done on the basis of FIFO as opposed to weighted average cost method?

(ii) if an item of inventory having cost of GH₵69,300 and net realisable value of GH₵65,000 is omitted from original inventory count?

Answer

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Tags: Cost of Sales, FIFO, IAS 2, Inventories, Net Realisable Value, Profit Impact, Weighted Average Cost
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q18 – Inventories

Calculate the value of raw materials and finished goods inventories for Tamasi Manufacturing at 31 Dec 20X5 per IAS 2 using FIFO.

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

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

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q17 – Inventories

Explain IAS 2 requirements for inventory measurement and state disclosure requirements for Kintampo Limited.

Question

MEASUREMENT OF INVENTORIES

IAS 2 inventories prescribes the accounting treatment for inventories under the historical cost system.

Required

(a) Explain briefly how IAS 2 requires the following to be dealt with.

(i) Fixed production overheads.

(ii) The determination of the lower of cost and net realisable value.

(iii) The identification of costs when there are large numbers of items which are ordinarily interchangeable.

(b) State four disclosure requirements of IAS 2 in respect of inventories.

Answer

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Tags: Cost Measurement, Disclosure Requirements, FIFO, IAS 2, Inventories, Net Realisable Value
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

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

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

Topic: Financial Reporting Standards and Their Applications

FA – L1 – Q44 – Inventory Valuation

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

Question

t 31 December 20X9 Bles had the following items of inventory:

Product	Quantity	Total cost GH₵	Realisable value GH₵	Estimated cost of realisation GH₵
ABC	20	80	200	20
DEF	10	150	120	10
GHI	6	6	7	2
JKL	12	36	12	1

Required
What amount of inventory should be presented in the statement of financial position of Bles at 31 December 20X9.

Answer

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Tags: Cost, Financial Position, Inventory, Net Realisable Value, Valuation
Level: Level 1

Topic: Inventory

AA – L2 – Q45 – Audit Evidence

List and explain audit procedures for inventory count evidence at Pearl & Stone's diamond jewellery shops. Explain factors to consider when using Crystal Experts' work for Pearl & Stone's inventory audit. Describe audit procedures to ensure correct valuation of Pearl & Stone's jewellery inventory.

Question

You are the audit manager in the firm of Amoah & Partners, an audit firm with ten national offices. One of your clients, Pearl & Stone, purchases diamond jewellery from national manufacturers. The jewellery is then sold from Pearl & Stone’s four shops. This is the only client your firm has in the diamond industry.

You are planning to attend the physical inventory count for Pearl & Stone. Inventory is the largest account on the statement of financial position with each of the four shops holding material amounts. Due to the high value of the inventory, all shops will be visited and test counts performed.

With the permission of the directors of Pearl & Stone, you have employed Crystal Experts, a firm of specialist diamond valuers who will also be in attendance. Crystal Experts will verify that the jewellery is, in fact, made from diamonds and that the jewellery is saleable with respect to current trends in fashion. Crystal Experts will also suggest, on a sample basis, the value of specific items of jewellery. Counting will be carried out by shop staff in teams of two using pre-numbered count sheets.

Required:
(a) List and explain the reason for the audit procedures used in obtaining evidence in relation to the inventory count of inventory held in the shops.

(b) Explain the factors you should consider when using the work of Crystal Experts.

(c) Describe the audit procedures you should perform to ensure that jewellery inventory is valued correctly.

Answer

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Tags: Audit Procedures, Diamond Industry, Inventory Valuation, Net Realisable Value, Substantive Procedures
Level: Level 2

Topic: Audit Evidence

Tag (SQ): Net Realisable Value

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FR – L2 – Q20 – Inventories

Compute cost of sales and inventory for Teshi Trading Limited using FIFO and weighted average cost methods for January 20X6.

FR – L2 – Q18 – Inventories

Calculate the value of raw materials and finished goods inventories for Tamasi Manufacturing at 31 Dec 20X5 per IAS 2 using FIFO.

FR – L2 – Q17 – Inventories

Explain IAS 2 requirements for inventory measurement and state disclosure requirements for Kintampo Limited.

Title: FR – L2 – Q16 – Inventories

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

FA – L1 – Q44 – Inventory Valuation

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

AA – L2 – Q45 – Audit Evidence

List and explain audit procedures for inventory count evidence at Pearl & Stone's diamond jewellery shops. Explain factors to consider when using Crystal Experts' work for Pearl & Stone's inventory audit. Describe audit procedures to ensure correct valuation of Pearl & Stone's jewellery inventory.

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FR – L2 – Q20 – Inventories

Compute cost of sales and inventory for Teshi Trading Limited using FIFO and weighted average cost methods for January 20X6.

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FR – L2 – Q18 – Inventories

Calculate the value of raw materials and finished goods inventories for Tamasi Manufacturing at 31 Dec 20X5 per IAS 2 using FIFO.

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FR – L2 – Q17 – Inventories

Explain IAS 2 requirements for inventory measurement and state disclosure requirements for Kintampo Limited.

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Title: FR – L2 – Q16 – Inventories

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

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FA – L1 – Q44 – Inventory Valuation

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

You're reporting an error for "FA – L1 – Q44 – Inventory Valuation"

AA – L2 – Q45 – Audit Evidence

List and explain audit procedures for inventory count evidence at Pearl & Stone's diamond jewellery shops. Explain factors to consider when using Crystal Experts' work for Pearl & Stone's inventory audit. Describe audit procedures to ensure correct valuation of Pearl & Stone's jewellery inventory.

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