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- 5 Marks
Question
Kaime Ltd (Kaime) deals in cosmetics and make-up manufacturing and with year-end 31
December 2022. Its date of authorization of financial statements for issue was 9 February 2023 and the annual general meeting is scheduled on 8 March 2023. The following event occurred:
A particular type of inventory held by Kaime at a different location was recorded at its cost of GH¢598,000 at 31 December 2022 in the statement of financial position. The entity sold 70% of this inventory for GH¢364,000 on 15 January 2023, incurring a commission expense of 15% of the selling price of the inventory. The remaining 30% of the inventory are estimated to be realised at cost.
Required:
In accordance with IAS 10: Events after the Reporting Period, explain the appropriate accounting treatment of the event in the financial statements of Kaime for the year ended 31 December 2022
Answer
This will be treated as an adjusting event as the sale of inventory after the reporting date reflects that the NRV of inventory is less than the cost.
The NRV of 70% inventory is GH¢309,400 calculated using the selling price of GH¢364,000 less commission expense of GH¢54,600 (GH¢364,000 × 15%), and it has a cost of GH¢418,600 (GH¢598,000 × 70%).
NRV = 364,000 – 54,600 = 309,400
Value of Inventory = GH¢309,400 + (30% of 598,000) = GH¢309,400 + GH¢179,400 = GH¢488,800
Inventory write-down = GH¢598,000 – GH¢488,800 = GH¢109,200 (in SOP/L).
(Marks are evenly spread using ticks = 5 marks)
- Topic: Financial Reporting Standards and Their Applications
- Series: NOV 2023
- Uploader: Cheoli