Tax FS worked out the answer just not clear why it is the answer?

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topcat
topcat Registered Posts: 452
in AAT Level 4 (Level 8 in Scotland)
Hello,

I have worked out the answer to the below but can not understand why it is the answer? I know it is something to do with over/under estimated tax but can not understand the logic..

If someone could explain please it would be appreciated

[IMG][/img]http://snag.gy/IY0z6.jpg

Many Thanks

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  • topcat
    topcat Registered Posts: 452
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    Not to worry, I just sussed it :)
  • Flyby
    Flyby Registered Posts: 13 Regular contributor ⭐
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    Hi,

    Sorry can't do a general post for some reason and just wondered if you could help answer my question. I don't come on the forum very often.

    Just wondered if you can help me get my head around this question from the practice paper on the aat website fnst level 4 - I obviously am missing something here (the answer is 53 but I don't know how to get to that). Basic explanation please, this exam is a nightmare to learn everything, I think I get things and then I loose it again my poor brain can't take all the remembering!! Huge thanks in advance.

    Cost incurred to date 62
    estimated costs to completion 7
    estimated costs of sale 10
    estimated selling price 70

    Thanks again
  • crispy
    crispy Registered Posts: 466 Dedicated contributor 🦉
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    Hello,

    From looking at this it looks like an Inventory valuation valuatiion question. The accounting standard for Inventory (IAS 2?) states that it must be valued at the lower of cost and Net Realisable Value.

    In the above the cost of Inventory is 62 and the Net Realisable Value (which is selling value less costs to get the item into a saleable condition) is 70 - (10+7) = 53. So...

    Inventory Cost = 62
    Inventory NRV = 53

    Inventory is valued at the NRV of 53 as it lower than cost.

    Thats about it I think.

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