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Journal correction - Closing Inventory NEED HELP PLEASE!!

PepsiMaxPepsiMax Registered, AAT Student Posts: 5
There are 2 questions that I just do not understand.

My teacher says when calculating closing Inventory you need to do "Cost of Inventory" LESS (selling price LESS costs incurred to make it sell able) but the text book says Inventories are to be valued at "the lower of cost and net realisable value"

Could someone explain this to me.

First One:


Second One:

No entries have been made for closing inventory as at 31 December 20X8, It has been valued at a selling price of £227,184. The sales price has had 20% added onto its original cost

Comments

  • davealucasdavealucas LondonMAAT Posts: 71
    The text book gives the correct interpretation.

    Net realisable value is simply the selling price less the cost of making the goods sellable. If that value is less than the cost of the goods originally, then that would be value of the inventory. I think this is what your teacher is trying to say.
  • PepsiMaxPepsiMax Registered, AAT Student Posts: 5
    Oh I see but could you explain the 2 questions above. I just do not understand what I am suppose to do.
  • Pian32Pian32 Registered Posts: 144
    For c) you know that the selling price of the goods is to be £17,820 and that this is 20% above cost. Since you record inventory at the lower of the two amounts you need to make the approriate journal for a closing inventory of £14,850

    For d) you have a transposition error and need to correct it depending on space you either reverse the incorrect entry and enter the correct one or just the correction amount of £630.
    AAT Level 4, MAAT
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