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UOL-M.

Phil-
IAS 2: Inventories Questions

Question-1
A Shadur Retail has the following purchases and sales of a particular product line.
Units Purchase Units Selling
purchased price per sold price per
unit unit
Rs.000 Rs.000
2 December 100 500 60 530
16 December 60 503 80 528
30 December 70 506 50 526
14 January 50 509 70 524
28 January 80 512 50 522
11 February 40 515 40 520
At 31 December the physical inventory was 150 units. The cost of inventories is
determined on a FIFO basis. Selling and distribution costs amount to 5% of selling price
and general administration expenses amount to 7% of selling price.

Required:
(a) State any three reasons why the net realisable value of inventory may be less
than cost.
(b) Calculate to the nearest Rs.000 the value of inventory at 31 December
(i) at cost
(ii) at net realisable value
(iii) at the amount to be included in the financial statements in accordance with
IAS 2
UOL-M.Phil-
IAS 2: Inventories Questions

Question-2
Khewra Manufacturing was formed on 1 January 2015. The entity manufactures and sells a
single product and values it on a first-in, first-out basis.
One tonne of raw material is processed into one tonne of finished goods.
The following details relate to 2015.
Purchases of raw materials
Purchases: 1,000 tonnes of raw materials per week
Price: Rs.100,000 per tonne on 1 January, increasing to
Rs.150,000 per tonne on 1 July
Import duties: Rs.10,000 per tonne
Transport from docks to factory: Rs.20,000 per tonne
Production costs
Production capacity: 1,500 tonnes per week
Variable costs: Rs.25,000 per tonne
Fixed costs: Rs.30,000,000 per week

Sales details
Selling price: Rs.240,000 per tonne
Delivery costs to customers: Rs.8,000 per tonne
Selling costs: Rs.4,000 per tonne
Inventories at 31 December 2015
Raw materials: 2,000 tonnes
Finished goods: 2,000 tonnes
There is a ready market for raw materials and the NRV of the raw materials is higher
than its cost.

Required
Calculate and disclose the value of inventories at 31 December 2015 in accordance
with IAS2.
UOL-M.Phil-
IAS 2: Inventories Questions

Question-3
NKL Enterprises produces a single product. On July 31, 2015, the finished goods inventory
consisted of 4,000 units valued at Rs. 220 per unit and the inventory of raw materials was worth
Rs. 540,000. For the month of August 2015, the books of account show the following:
Rupees
Raw material purchases 845,000
Direct labour 735,000
Selling costs 248,000
Depreciation on plant and machinery 80,000
Distribution costs 89,560
Factory managers salary 47,600
Indirect labour 148,000
Indirect material consumed 45,000
Other production overheads 84,000
Other accounting costs 60,540
Other administration overheads 188,600
Other information:
(i) 8,000 units of finished goods were produced during August 2015.
(ii) The value of raw materials on August 31, 2015 amounted to Rs. 600,000.
(iii) There was no work-in-progress at the start of the month. However, on August 31,
the value of work-in-progress is approximately Rs. 250,000.
(iv) 5,000 units of finished goods were available in inventory as on August 31, 2015.

Required:
Compute the value of closing inventory of finished goods as on August 31, 2015 based
on weighted average cost method.
UOL-M.Phil-
IAS 2: Inventories Questions

Question-4
AK Limited follows a perpetual inventory system. Following information is available from
the accounting records for the month of January 2016:

Quantity Amount (Rs.)


Inventory as at 31 December 2015 3,500 35,000
Purchase on 7 January 2016 3,700 44,400
Purchase on 13 January 2016 4,200 58,800
Purchase on 31 January 2016 2,000 26,000
Sale on 12 January 2016 3,000 60,000
Sale on 25 January 2016 5,500 115,500

Additional information:

(i) 100 units out of 4,200 units purchased on 13 January 2016 were found defective and
returned to supplier on 28 January 2016.

(ii) Inventory count conducted on 31 January 2016 revealed that 4,820 units were
physically available.

Required:

(a) Prepare inventory ledger cards for the month of January 2016 under the perpetual
system showing quantity, unit cost and value under each of the following
basis of inventory valuation:

FIFO
Weighted average

(b) Under weighted average method, prepare journal entries to record the defective
items returned to supplier and surplus/shortfall in the inventory due to physical
count.

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