Chapter 13

Chapter 13 - Solutions to Gripping IFRS: Graded Questions...

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Solutions to Gripping IFRS: Graded Questions Inventories Chapter 13: Page 1 Solution 13.1 a) Notes to the financial statements 1. Significant Accounting Policies: 1.1 Statement o compliance These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance,1984, provisions of and directives issued under the Companies Ordinance, 1984. In case the requirements differ, the provisions or the directives of the Companies Ordinance, 1984 shall prevail. 1.2 Accounting Convention These financial statements have been prepared on the basis of historical cost convention 1.3 Inventory Inventory is valued at the lower of cost and net realisable value. Cost is determined on first in, first-out basis. Cost of work-in-progress and finished goods include all direct costs and an appropriate portion of manufacturing overhead expenses. 1.4 Revenue Revenue represents net invoiced sales to customers. Other income includes commission and rental income. b) Further information 2. Inventory Finished goods Work-in-progress Raw materials Consumable stores
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Solutions to Gripping IFRS: Graded Questions Inventories Chapter 13: Page 2 Solution 13.2 Debit Credit 1 July 20X9 Inventory 28 000 x 80% 22 400 Settlement discount allowance (asset) 28 000 x 20% 5 600 Creditors 30 000 – 2 000 28 000 Purchase of inventory on credit 2 September 20X9 Creditors 28 000 Bank 30 000 – 2 000 28 000 Payment for inventory purchased (only net of trade discount) Discount forfeited (expense) 5 600 Settlement discount allowance (asset) 5 600 Reversal of allowance (missed early settlement date)
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Solutions to Gripping IFRS: Graded Questions Inventories Chapter 13: Page 3 Solution 13.3 Scenario a) Class of inventory Cost NRV if sold in present condition NRV if sold as completed product NRV applicable Raw materials 140 000 Used in moisturising lotion 65 000 60 000 55 000 60 000 Used in sunblock 75 000 60 000 80 000 80 000 Work in progress 95 000 Moisturising lotion 40 000 30 000 35 000 35 000 Sunblock 55 000 45 000 50 000 50 000 Finished goods 190 000 Moisturising lotion 90 000 N/A 140 000 140 000 Sunblock 100 000 N/A 80 000 80 000 Class of inventory Adjusted Value Raw materials 135 000 Used in moisturising lotion 60 000 Used in sunblock 75 000 Work in progress 85 000 Moisturising lotion 35 000 Sunblock 50 000 Finished goods 170 000 Moisturising lotion 90 000 Sunblock 80 000 Total net realisable value 135 000 + 85 000 + 170 000 390 000 Total cost before 140 000 + 95 000 + 190 000 (425 000) Total write down required 35 000
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Solutions to Gripping IFRS: Graded Questions Inventories Chapter 13: Page 4 Solution 13.3 continued …
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Chapter 13 - Solutions to Gripping IFRS: Graded Questions...

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