Ameer purchased a business that buys and sells electrical household goods. When taking over the business, Ameer realised that the existing inventory was obsolete. He therefore decided to have a clearance sale of the existing inventory and replace it with a new, up-to-date inventory.

The following information is available for July:

Required:

(a) Explain the following as they relate to inventory:

• net realisable value • the accounting concept of historic cost • the accounting concept of realisation.

(b) Calculate the value of the inventory on 1 July.

(c) Calculate the total value of the inventory on 31 July.

(d) Calculate the gross profit for the month ended 31 July.

(e) Evaluate the use of accounting concepts and conventions in the preparation of financial statements.

Transcribed Image Text:

1 Inventory on 1 July 5 Cookers 8 Fridges 10 Washing machines Cost 180 each 90 each 160 each Clearance sale price 190 each 60 each 170 each