GROUP ASSIGNMENT

INVENTORY VALUATION (IAS 2)

QUESTION ONE
(a) In the context of IAS 2-inventories, define what is meant by the terms' inventory and net
realizable value’ and explain how inventories should be measured.
(b) The following details were extracted from the stores ledger card of a small manufacturing
company during November 2018
Date:
1 opening stock of 200 units valued at 160,000
2 Received 400 units at TZS 500 each
5 Issued 500 units to the production
3 Received 700 units valued at 6000
15 Issued 100 units to the production
13 Issued 500 units to the production
19 Issued 200 units to the production
16 Received 800 units at TZS 25 each
25 Issued 300 units to the production
27 Received 200 units valued at TZS 5,200
30 Issued 100 units to the production.

REQUIRED:
Prepare the store ledger card using both methods (FIFO and AVCO) and separately show
the following
i. Value of closing inventory on 30th November 2018
ii. Closing inventory units
iii. Value of issued units during the month

QUESTION TWO
(a) In the context of IAS 2-Inventories, describe what is meant by allowable costs of purchase’
and use an example to explain your answer.
(b) On 1 April 2015, a company’s inventory included 10,000 items which had been acquired for
tsh 140 per item. Purchases and sales of the items during the month to 30 April 2015 were
as follows:
Puchases Number of Cost per item sales Number of
items bought items sold
April 5 10,000 142 April 9 16,000
April 10 6,000 146 April 15 7,000
April 25 15,000 150 April 28 17,000

REQUIRED:
Calculate the cost of bricks sold during the year and the cost of inventory of bricks remaining at 30
April 2015, using:
i. First in, first out (FIFO)
ii. Weighted average cost (AVCO)

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QUESTION THREE
(a) Provide five examples of costs which are specifically excluded from the costs of
inventories and instead are recognized as expenses in the period in which they are incurred.
(b) The inventory of motor vehicles dealer at the end of the accounting period includes the
following used vehicles
Motor vehicles Cost incurred to Expected further Expected selling
date costs before sale price.
Vehicles A 14,200 1,250 18,000
Vehicles B 17,500 1,000 20,000
Vehicles C 11,900 1,240 14,000
Vehicles D 13,000 2,760 15,000
The dealer’s sales staff are paid a commission when they sell a vehicle. This commission calculated
at 5% of selling price.

REQUIRED
Calculate the value at which these items should be shown in the dealer’s financial statement.

QUESTION FOUR
(a) Briefly explain atleast five situations in which net realizable value is likely to be less than cost.
(b) The main activity of WEGESA LTD is to buy old vehicles, which are sold after converting
them into a saleable condition. At 28 February 2011, the end of company’s financial year,
WEGESA ltd had the following vehicles that were at various stages in the process of being
converted to be ready for sale.
Vehicle Purchase Cost incurred Conversion Expected Expected
price to bring to costs incurred further costs selling price
present to date before sale
location
TZS TZS TZS TZS TZS
W 9470 1080 880 - 14,000
X 12830 940 1540 150 19,300
Y 3550 750 1260 600 6,000
X 7680 460 - 2200 11,800
Additional information
i. Expected selling expenses for each vehicle are 6% of the expected selling price
ii. A quarter of the conversion costs relate to transport costs, while the balance relates to
abnormal loss of material.

REQUIRED: Show the amount of closing stock for each Vehicle

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QUESTION FIVE
(a) Explain the suitability of the FIFO as the method of Inventory Valuation
(b) Breeden Bakery Limited makes ‘home-style’ cakes which are sold to supermarket chains.
The company uses the first in, first out (FIFO) method for valuing its inventories
Complete the following stores ledger record for whole-wheat flour for May 20-7:

STORES LEDGER RECORD: wholewheat flour

Date Receipts Issues Balance
Quantit Price Total Quantit Price Total Quantity Total
y Cost y Cost Cost

Balance at
1 May 10,000 2,500

6 May 20,000 0.30 6,000 30,000 8,500

10 May 20,000
17 May 10,000 0.35 3,500
20 May 15,000

QUESTION SIX
(a) Show clearly why and how the periodic can be more relevant compared to the perpetual method.

(b) The supplies department of Peoples Bank has the following movements of an item of inventory
for June 20-4:
units cost per total
unit cost

1 June Balance 2,000 2.00 4,000

15 Receipts 1,000 2.30 2,300
June
21 Issues 2,500
June

REQUIRED: complete the following table for FIFO and AVCO:

Date Description FIFO AVCO

20-4 TZS TZS

21 June Total issue value

30 June Total closing inventory value

QUESTION SEVEN
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 (a) Discuss the limitations of periodic methods of inventory valuation

(b)
i. Go Games Limited sells computer games. At the end of the financial year, the company’s
inventories include:
ii. 300 copies of ‘X1X’ game that cost TZS40 each and will sell at only TZS30, because it is
an out- of-date version.
iii. 260 copies of a newly-released game, ‘X-TRA-G’ that cost TZS56 each and will be sold
for TZS90 each.
iv. 100 copies of a current version of ‘X-TREME 2’ game, which is expected to be up-dated
to ‘X TREME 3’ in the near future. These cost TZS35 each and normally sell for TZS55,
but because they may soon be out-of-date, Go Games Limited has reduced the price to
TZS42 each.

REQUIRED
Calculate the total value of the inventory items described above, in order to comply with IAS 2,
Inventories. Include an explanation of your calculations.

QUESTION EIGHT
(a) Explain why IAS 2 recommend on the use of FIFO and AVCO and not LIFO?

(b) Your friend, Gerry Gallagher, has recently set up in business selling plastic toys. The
transactions for his first month of trading are:

1 April Bought 500 toys at TZS1.50 each 3 April Sold 250 toys at TZS2.50 each
7 April Bought 1,000 toys at TZS1.40 each 14 April Sold 600 toys at TZS2.60 each
20 April Sold 300 toys at TZS2.70 each
27 April Bought 1,050 toys at TZS1.62 each

REQUIRED
Calculate his closing inventory valuation using each of the two methods.

QUESTION NINE
(a) Outline the 6 items that comprise inventory and the related items that should not be included

(b)

Date Purchases Date Sales

1-Aug 120 units @ 6-Aug 100 units @
TZS120 TZS140
8-Aug 50 units @ TZS125 10-Aug 55 units @
TZS145
16-Aug 20 units @ TZS140 25-Aug 40 units @
TZS160
20-Aug 30 units @ TZS150

REQUIRED:
Prepare the store ledger card using both methods (FIFO and AVCO) and separately show the
following
i. Value of closing inventory on 30th November 2018
ii. Closing inventory units
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iii. Value of issued units during the month

THE END

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