Financial statements help

Kelly7

Hi guys

Fully aware that I probably ask too many questions on here but I am in need of help so thought I can only ask. I have just gone through the 2010 practice assessment and had the following problems. Would be grateful if anyone could explain how to work out the following questions as I am not getting the correct answers and as I think there are a lot of areas to lose marks on this paper I need to try and understand as much as I can (which I would want to anyway but esp on this exam).



My first confusion came in question 1 (not a great start) when there was a prepayment applied to the distribution costs of an advertising contract to be run over the following 3 months. I could just be not thinking correctly as we did these at the beginning of the year but why here?



The second and third are both on 1.4
A company has 3 different products in its inventories, the following information applies

Product......Costs incurred to date.........Estimated costs of completion......Expected selling price
1..................£400................................£180............................................£562
2..................£572................................£210............................................£798
3..................£615................................£713............................................£762

The answer to this is £1,543, I worked it out to a completely different figure, not sure if I'm not understanding the question or i am completely out.



In July 2010 Foxtrot revalued a piece of land from a cost of £400,000 to it's market value of £700,000. In July 2013 due to a decline in the property market, the market value of the land fell to £340,000. How much of the impairment loss should be recognised in the comprehensive income in the company's SOCI for the year ended 31 December 2013. I thought the full difference of £360,000 but the actual answer is £300,000.


Sorry for all the questions but thanks in advance for any help you may have. Not feeling very confident for this exam but I have about 4 weeks until I take it so there's time to go over things and try and get my head around different standards etc.

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Nps

Hi, Are you asking why advertising costs are shown as part of distribution costs? If so, sometimes the question will tell you that they are, and sometimes costs will just be put into whatever category seems most appropriate. I wouldn't worry too much about it, quite often certain costs would be just as acceptable in one category as another. 2nd question - afraid I can't help there as I get a figure of just over £1000. Is that the full question? Normally it is expected selling costs minus costs required for completion/selling/distribution costs etc. Final question - from memory as it's been ages since I did this, but...... The £300,000 revaluation would be shown as a revaluation surplus in the SOCI. When it is revalued back down, that first £300,000 is taken from the revaluation surplus in the SOCI, but the final £60,000 is shown as an immediate expense so would be shown in the normal profit and loss statement. The question is only asking about the SOCI not the statement of profit/loss (quite often these are shown on the same statement but they can also be separate statements).

Nps

PS - I've assumed that your second question is asking about inventory valuation. And I apologise for lack of paragraphs - this new forum insists on showing my posts in one big block of text regardless of how many paragraphs I put in!

superwizon

Kelly7 wrote: »

The second and third are both on 1.4
A company has 3 different products in its inventories, the following information applies

Product......Costs incurred to date.........Estimated costs of completion......Expected selling price
1..................£400................................£180............................................£562
2..................£572................................£210............................................£798
3..................£615................................£713............................................£762

The answer to this is £1,543, I worked it out to a completely different figure, not sure if I'm not understanding the question or i am completely out.

You've copied the question down wrong here, it's £173 costs of completion not £713.
It's valued at lower of cost and NRV (which is selling price less costs of completion).
So product 1 is £382 (£562-£180)
Product 2 is £572 (this is lower than NRV which is £588)
product 3 is £589 (£762-£713)

Totalling £1543.

Hope this helps. In my exam I had a long written question on inventories so hoping I explained that properly as I haven't had my results yet.

Kelly7

Thank you both, I get the inventory valuation question now :001_smile:. The revaluation & impairment question is confusing though, I'll have to see if I can find anything about that to read up on.

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