AOS 3

Question 1

Purpose of credit note

Answer 1

Is to show a return in goods back to the business. This is due to damage, faulty or goods not fit for purpose.

Question 2

Reasons credit note to be issued

Answer 2

1. faulty good
2. damaged goods
3. not right good
4. does not fit purpose

Question 3

costs meaning for inventory

Answer 3

The cost of an inventory item includes the actual purchase price, plus any other costs directly related to that particular item. This may include expenses such as delivery charges and packaging costs, as well as any modifications to the inventory item.

Question 4

difference between product cost and period cost

Answer 4

A product cost is one that can be logically allocated to an individual unit of inventory and therefore become part of inventory. A period cost is not allocated to inventory items, but written off as an expense for the current reporting period.

Question 5

Net realisable value meaning (NRV)

Answer 5

Net realisable value (NRV) is defined as the estimated selling price of an item, less any expenses likely to be incurred in the selling, marketing and distribution of that item.

Question 6

why NRV may be lower than cost price

Answer 6

• damaged
• shop soiled
• near its use-by-date
• a superseded model