ExpertMedium2 marksMultiple Choice
ACCA · Question 04 · Recording Transactions: Inventory
Section A
AgriGrow Ltd operates a large commercial farm. At year-end, they have 10,000 tonnes of harvested wheat in silos. The cost to grow and harvest the wheat was $150 per tonne. The current market selling price is $140 per tonne, and transport costs to the market are $5 per tonne. At what total value should this inventory of harvested wheat be stated in the financial statements?
Section A
AgriGrow Ltd operates a large commercial farm. At year-end, they have 10,000 tonnes of harvested wheat in silos. The cost to grow and harvest the wheat was $150 per tonne. The current market selling price is $140 per tonne, and transport costs to the market are $5 per tonne. At what total value should this inventory of harvested wheat be stated in the financial statements?
Answer options:
A.
$1,500,000
B.
$1,400,000
C.
$1,350,000
D.
$1,450,000
How to approach this question
Apply IAS 2: Inventory is measured at the lower of Cost and Net Realisable Value (NRV). Cost = $150. NRV = Selling Price - Costs to Sell = $140 - $5 = $135. Since NRV ($135) < Cost ($150), value at NRV. Total = 10,000 * $135.
Full Answer
C.$1,350,000✓ Correct
Under IAS 2 Inventories, items must be valued at the lower of cost and net realisable value (NRV). Cost is $150/tonne. NRV is the estimated selling price ($140) less estimated costs to sell ($5) = $135/tonne. Therefore, the wheat is valued at $135 * 10,000 = $1,350,000.
Common mistakes
Forgetting to deduct the transport costs from the selling price to find NRV.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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