Home For AAT student members AQ 2016 Foundation Certificate in accounting Elements of Costing
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Valuation help

Leanne312Leanne312 Just JoinedUsers Awaiting Email Confirmation Posts: 1
Hey everyone, could anyone help me with the following question?

I've got the first part as minus £500 off the inventory, the second i am not sure about. The third i have as plus £350 to the inventory. I don't get any of the answers provided below, so probably got this wrong.

"At the year-end, a business valued its inventory at cost of £106,800.00 However, since the valuation was carried out the following matters have come to light, this means that the original inventory valuation may need to be amended:

One item of inventory is damaged. The item cost £1,000.00, repairs costing £250.00 are necessary to get the item into a saleable condition. The item will then be sold in a 'clearance' sale for £750.00.
One item of inventory which cost the business £500.00 is now obsolete and is to be scrapped.
There are 10 items of inventory, the packaging on which has become damaged. The items cost the business £60.00 each, but they now have to be repackaged; the repackaging will cost £5.00 per item. The items will then be sold at £100.00 each.
Based on the information provided above, indicate which one of the following figures represents the amended inventory valuation:

The answers are £105,750, £107,050, £105,800, £105,300. "

Thank you in advance.

Comments

  • Clintm15Clintm15 Well-Known FarehamRegistered Posts: 247
    I haven't done a question like this for years, should be fun.

    I have the damaged inventory as -

    Original cost = £1000
    Repairs = £250
    Total cost = £1250
    Net realisable value = £750

    Write-off = £1250-£750 = £500

    Obsolete inventory -

    Write-off to liquidation value = £500

    Repackaged inventory -

    Original cost = 10 x £60 = £600
    Repackaging costs = 10 x £5 = £50
    Total cost = £650
    Net realisable value = 10 x £100 = £1000

    Cost lower than NRV so only an increase of £50 necessary.


    Total overall net change £106,800 - £500 -£500 +£50

    New adjusted inventory = £105,850

    I don't have one of the answers either. :/

    AAT
    Level 2 - 2011
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    Level 4 - 2013

    ACCA
    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
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  • Clintm15Clintm15 Well-Known FarehamRegistered Posts: 247

    £105,800.00

    What's the basis for ignoring the damaged packaging?

    Is it included in the NRV?

    As in... Net realisable value = £1,000 - £50 = £950
    AAT
    Level 2 - 2011
    Level 3 - 2012
    Level 4 - 2013

    ACCA
    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
    F6 - Taxation - Dec 2013 (passed)
    F7 - Financial Reporting - Jun 2014 (passed)
    F8 - Audit & Assurance - Dec 2015 (passed)
    F9 - Financial Management - Jun 2015 (passed)
  • Clintm15Clintm15 Well-Known FarehamRegistered Posts: 247

    The packaging does not affect inventory.

    It would impact the COS, however.

    The packaging is part of the inventory surely? The original packaging price would have been included in the original inventory price.

    So unless the packaging is part of the selling costs in the NRV calculation (NRV = market price - selling costs), or delivery packaging that forms part of carriage costs, it doesn't make too much sense.
    AAT
    Level 2 - 2011
    Level 3 - 2012
    Level 4 - 2013

    ACCA
    F4 - Corporate Law - Dec 2015 (passed)
    F5 - Performance Management - Dec 2014 (passed)
    F6 - Taxation - Dec 2013 (passed)
    F7 - Financial Reporting - Jun 2014 (passed)
    F8 - Audit & Assurance - Dec 2015 (passed)
    F9 - Financial Management - Jun 2015 (passed)
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