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Tutorial 6

This document provides information about inventory valuation for several companies. It details the cost components and net realizable value calculations for office furniture inventory items. The total year-end inventory value is calculated as RM113,760. Production overhead allocation and unit cost calculations are shown for a manufacturing company. Closing inventory valuation is required for December 31, 2020. Purchase cost components and inventory valuation requirements under IAS 2 are outlined for electronic guitar inventory. The closing inventory value is calculated as RM93,500. Inventory adjustments are identified for a retail company, totaling -RM970 to adjust the original RM180,000 valuation to the correct RM179,030 annual accounts value.

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ZHUN HONG TAN
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20 views

Tutorial 6

This document provides information about inventory valuation for several companies. It details the cost components and net realizable value calculations for office furniture inventory items. The total year-end inventory value is calculated as RM113,760. Production overhead allocation and unit cost calculations are shown for a manufacturing company. Closing inventory valuation is required for December 31, 2020. Purchase cost components and inventory valuation requirements under IAS 2 are outlined for electronic guitar inventory. The closing inventory value is calculated as RM93,500. Inventory adjustments are identified for a retail company, totaling -RM970 to adjust the original RM180,000 valuation to the correct RM179,030 annual accounts value.

Uploaded by

ZHUN HONG TAN
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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1a) Office table Office chair

Cost Cost
Direct material 90 Direct material 84
Direct labour 72 Direct labour 60
Production overhead 120 Production overhead 132
282 276

NRV NRV
Selling price 360 Selling price 420
Less: transport -60 Less: transport -72
Less: marketing -42 Less: marketing -30
258 318
Value of this item is 258 Value of this item is 276 (Take the smallest)

Inventories held at the financial year end


= RM258*120 unit + RM276*300 unit
= RM30,960 + RM82,800
= RM113,760

b)
2a) RM'000
Production overhead 1,400,000
Less: wastage and idle time 80,000
1,320,000
Add: admin, expenses related to production (1/3*360,000) 120,000
1,440,000

Cost per unit of finishes good


Direct material 600
Direct labour / Variable overhead 180
Production overhead (RM1,440,000/12,000 unit) 120
900

b) Value of closing inventories as at 31 December 2020

c)
3a)

b)

ci) The valuation of closing inventories is as follows:

Purchase price of electronic guitar consists of:


RM
Inventories price 1,000
Import duties 100
Handling fees 300
Other directly related changes 400
Less: Trade discount / rebates (200)
Total purchase cost per electronic guitar 1,600

The total ourchase cost of the electronic guitar is:


50 electronic guitar* RM1600 = RM80,000

ii) Cost of inventories consists of:


- Purchase cost
- Conversion cost
- Cost incurred to bring the products into its current condition and location (PARA 15)

Therefore, the valuation of closing inventories are:


RM
Purchase costs per electronic guitar 1,600
Direct cost of modifincation 250
Special handling cost for electronic guitar 20
Total costs 1,870
Note: The following costs are EXCLUDE from the calculation according to IAS 2:

Wastage and inefficiency cost dur to inexperienced labour 30


General administration costs 50
Salary of general secretary 20
Commision of salesman 80

The valuation of closing inventories for the electronic guitar is:


RM1,870*50 = RM93,500

d)
4a)

b)
5ai)

ii)

b) Inventory adjustment (all figure in RM)


Adjustment
Item Explanation +
i The sub total error has overvalued inventories by RM(9920-9290)
ii Free sample received are not trading items and should be exclude from
the valuation -
iii This arithmental error has over-valued the items by RM(8.00-0.80) per
-
unit for 625 units
iv Goods held should be included in the valuation regardless of whether -
or not they have been paid for yet.
v Cost RM2328. NRV RM(3,600-921) = RM2679. The inventory should
be valued at the lower of cost or NRV. Since the cost is lower, no -
adjustment is required.
vi Inventory issued on sale or retun and not yet accepted should be
included in the valuation and valued at the lower of cost or NRV, here 2,000
at RM5 each (cost)
2,000

Original valuation of inventories, at cost 180,000


Adjustment and corrections:
to increase valuation 2,000
to decrease valuation -2,970 -970
Valuation of inventories for the annual accounts 179030
Adjustment
-
630
-

2,340

2,970

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