The closing inventory of AB Ltd amounted to R116,400 excluding the following two inventory lines:
(a) 400 items which had cost R4 each. All were sold after the statement of financial position date for R3 each, with selling expenses of R200 for the batch.
(b) 200 different items which had cost R30 each. These items were found to be defective at the statement of financial position date.
Rectification work after the statement of financial position amounted to R1,200, after which they were sold for R35 each, with selling expenses totaling R300.
Which of the following total figures should appear in the statement of financial position of AB Ltd for inventory?
a.
R122 300
b.
R121 900
c.
R122 900
d.
R123 300
c. R122 900
Calculation:
Closing inventory (before adjustments) = R116,400
(a)
Cost of 400 items = 400 x R4 = R1,600
Total cost after adjustments = R1,600 + R200 (selling expenses) = R1,800
Net realizable value (selling price - selling expenses) = 400 x R3 - R200 = R800
Loss on sale = Total cost - Net realizable value = R1,800 - R800 = R1,000
(b)
Cost of 200 defective items = 200 x R30 = R6,000
Cost of rectification work = R1,200
Total cost after rectification = R6,000 + R1,200 = R7,200
Net realizable value = 200 x R35 - R300 (selling expenses) = R6,700
Loss on sale = Total cost - Net realizable value = R7,200 - R6,700 = R500
Total adjustments = R1,000 (from (a)) + R500 (from (b)) = R1,500
Closing inventory (after adjustments) = R116,400 - R1,500 = R114,900
So, the total figure for inventory in the statement of financial position should be R122,900.