ExpertMedium1 markShort Answer
ACCA · Question 51 · Recording transactions and events
Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000.
What is the correct valuation for Closing Inventory to be included in the financial statements? (Enter numbers only)
Scenario: AgriGrow Co trial balance at 30 Sept 20X6: Revenue $2,500,000; Purchases $1,400,000; Opening Inventory $300,000; Trade Receivables $450,000; Trade Payables $200,000; Allowance for receivables (1 Oct 20X5) $20,000; Plant & Machinery Cost $800,000; Acc. Dep (1 Oct 20X5) $320,000. Adjustments: 1. Closing inventory cost $350,000 (includes damaged items cost $50,000, NRV $30,000). 2. P&M depreciation 20% reducing balance. 3. Allowance for receivables adjusted to 5% of receivables. 4. Accrue unpaid electricity $15,000.
What is the correct valuation for Closing Inventory to be included in the financial statements? (Enter numbers only)
How to approach this question
Adjust the total cost of inventory by writing down the damaged items to their Net Realizable Value (NRV).
Full Answer
Total inventory at cost = $350,000. The damaged items must be valued at the lower of cost ($50,000) and NRV ($30,000). Therefore, they must be written down by $20,000. Adjusted closing inventory = $350,000 - $20,000 = $330,000.
Common mistakes
Subtracting the full $50,000 or $30,000 from the $350,000.
Practice the full ACCA FA — Financial Accounting Practice Exam 2
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