Exam 7: Inventory

Randwick Ltd has a year-end of 30 June 2009.During the year the following errors were discovered. - Merchandise inventory at the factory had been understated by $44 000. - Goods on consignment from a supplier for $13 000 were included in inventory at the shops. - Physical inventory for one warehouse had a shortage of $58 000. What is the net effect of above errors in the statement of comprehensive income and statement of financial position (inventory)accounts of Randwick Ltd?

Use of the LIFO method has been deemed unacceptable under AASB 102 because:

Handy Ltd produces a line of brooms.The summary cost information for brooms for the year ended 30 June 2012 is: Item of expenditure \ 000 Advertising 500 Depreciation-factory equipment 100 Depreciation-administrative building 21 Interest expense 16 Salaries-factory personnel 120 Salaries-administration and marketing 80 Rent-factory 110 Raw materials 250 The level of output for the period was the normal level of production of 290 000 units.What is the cost per broom (rounded to the nearest cent)in accordance with AASB 102 requirements?

AASB 102 requires that inventory is valued at:

Phoenix Ltd sells hard disks of similar make and model and reports an opening inventory on 1 July 2012 of 20 units purchased at $60.Its purchases during are as follows: September 90 units @ $70 November 110 units @ $75 March 70 units @ $80 Phoenix Ltd sold 260 units during the year. What is the cost of ending inventory using FIFO and weighted average method respectively (rounded to the nearest dollar)?

The cost of sub-contracted work is not included in costs of conversion for the purposes of calculating the cost of inventory.

What are production overheads? Explain the criteria to be used when selecting a method to allocate production overheads.

Circle Ltd manufactures polystyrene trays for a variety of purposes.The following information relates to the production of the medium trays used by meat packing companies for the period ended 30 June 2012. Date Manufactured Cost \ Units sold 1 July (balance) 1000@\ 0.15 150 15 July 2011 900@\ 0.10 90 19 July 2011 1050 20 August 2011 200@\ 0.20 40 21 August 2011 890 15 October 2011 750@\ 0.12 90 30 October 2011 500 15 December 2011 650@\ 0.16 104 15 January 2012 975 13 March 2012 920@\ 0.14 128.8 30 March 2012 860 15 March 2012 570@\ 0.20 114 28 June 2012 300 The company uses a perpetual inventory system.The net realisable value per extra large cardboard box is $0.17 at the end of the period.What are the costs of sales and the value of ending inventory for Rectangle Ltd assuming the FIFO cost-flow assumption is used?

AASB 102 requires that fixed manufacturing costs be excluded from the cost of inventories,as they cannot be allocated accurately.

The two main methods for dealing with fixed costs in relation to the production of inventory are:

AASB 102 provides that inventories must be valued at the lower of cost and net realisable value for groups of homogeneous items where it is impracticable to measure them on an item-by-item basis.

According to AASB 102,one or more of which set of methods should be used to apply the costs of inventories to particular items of inventory?

In addition to the cost-flow assumption,the system used to record movements in inventory also affects the determination of the cost of inventory.What are the systems commonly in use for recording the movement of inventory?

According to AASB 102 material information relating to which of the following must be disclosed?

David Gordon is an accountant for Bronte Ltd.At the end of the year he realised that ending inventory was overstated but the purchases account was recorded correctly.What is the effect of correcting the above error in the statement of comprehensive income and statement of financial position (inventory)accounts of Bronte Ltd?

Kensington Ltd is an importer and retailer of European made glass crystals.For the year ended 30 June 2008,Kensington Ltd still holds 30 units of an item originally purchased for $10 000 each and a net realisable value of $8000.On 1 June 2009 the TV show Home Improvement featured a similar item prompting an increase in demand for this glass crystal.Management believes that the net realisable value of this item is now $15 000.All 30 items remain unsold on 30 June 2009.What is the effect of holding this inventory on the statement of comprehensive income of Kensington Ltd for the years ended 30 June 2008 and 2009?

Discuss the relative merits of using FIFO and LIFO as basis of cost of inventories during periods of rising prices.

Standard costs are able to be used under AASB 102 where:

Standard costs may be used to arrive at the cost of inventory only where standards are set at ideal levels and any costs arising from exceptional wastage are excluded from the cost of inventories.

Discuss why LIFO cost-flow method is not permitted in Australia under AASB 102 when it is supported in the US in periods of rising prices.