FSLC Test 2

sophie_612

Hi,

Please can someone explain where they got the closing inventories figure from please?

Thanks
Sophie

hal978

Because closing inventories had to be written down by £258,000 (the further information says some inventories that cost £358,000 can only be sold for £100,000).

Inventories have to be valued at the lower of cost and net realisable value.

Clintm15

Included within inventory are some items at cost £358,000 that could only be sold for £100,000. Because inventory has to be sold at the lower of cost or net realisable value (what you can sell it for) we have to calculate a write-down.

The write down means taking the particular inventory item down from £358,000 to £100,000, this means taking the overall inventory down by £258,000 (£358,000 - £100,000).

So original closing inventory £3,142,000 - £258,000 = £2,884,000.

Duchess1

Sophie, as above!