7. In a period of decreasing prices, the inventory reported in Lee Ltd’s statement of financial position is
close to the current cost of the inventory, whereas Lam Ltd’s inventory is considerably above its current
cost. Identify the inventory cost flow method used by each entity.
8. Nancy Drews is studying for the next accounting examination. What should Nancy know about (a)
departing from the cost basis of accounting for inventories and (b) the meaning of net realisable value in
relation to accounting for inventories?
10. Peta Ltd discovers in 2017 that its ending inventory at 30 June 2016 was $5000 understated. What
effect will this error have on (a) 2016 profit, (b) 2017 profit, and (c) the combined profit for the 2 years?
E5.8 The following data are available for Fashionista Hair Accessories Pty Ltd at 31 December:
a. Calculate the lower of cost and net realisable value for Fashionista Hair Accessories total inventory.
b. Why is it important to account for inventory using the lower of cost and net realisable value basis?
Calculate inventory turnover, days in inventory and gross profit rate. (LO8)