9. Inventory

Question 1

Inventory consists of

Answer 1

goods purchased for resale
consumable stores (i.e. oil)
raw materials and components
partly finished goods
finished goods

Question 2

Year end adjustments

Answer 2

At the end of the year two adjustments are required to recognize the opening and closing inventory in the financial statements

Question 3

Inventory brought forward from prior year must be removed from inventory assets and recognized as an expense

Answer 3

DR opening inventory in costs of sales (SPL)

CR inventory assets (SFP)

Question 4

Unused inventory at the end of the year must be removed from the purchase costs and carried forward as an asset

Answer 4

DR inventory assets (SFP)

CR closing inventory in cost of sales (SPL)

Question 5

Valuing inventory

Answer 5

should be valued at the lower of cost and net realizable value

Question 6

Inventory Cost

Answer 6

All expenditure incurred in acquiring product or service. Including; cost of purchase, materials, freight, costs of conversion including direct and production overheads

Question 7

Net realizable value

Answer 7

Revenue expected to be earned in the future when the goods are sold, less any selling costs

Question 8

Excluded costs from inventory

Answer 8

Overheads
selling costs
storage costs
abnormal waste of materials, labour or other costs i.e. idle time
administrative overheads

Question 9

Methods of calculating cost of inventory

Answer 9

Unit cost
FIFO (first in first out)
AVCO (average cost)
AVCO	previous balance value + new receipts value
/
previous units + new units