The main activity of J&T Ltd is to buy old vehicles, which are sold after converting them


The main activity of J&T Ltd is to buy old vehicles, which are sold after converting them into a saleable condition. At 28 February 2018, the end of the company€™s financial year, J&T Ltd had the following vehicles that were at various stages in the process of being converted to be ready for sale.

Purchase price Conversion Expected Velhicle Expected further Costs incurred on bringing to present location selling pric

1. Expected selling expenses for each vehicle are 6% of the expected selling price.

2. A quarter of the conversion costs relate to materials, but 20% of the cost of materials used in the conversions are considered to be abnormal wastage, due to a poor quality type of material that has been used.

In an attempt to reduce the abnormal wastage of materials, material P has been used by the company since 5 January 2018, when 25 kilos were purchased for a total cost of £550. Subsequent purchases and usage of this material were as follows:

Transaction Number of kilos Total cost (£) Date Jan 7 Used 19 Jan 20 Jan 28 Purchased 20 520 Used 18 Feb 7 Used 4 Feb 1

To ensure the correct valuation of the company€™s inventories is reflected in the final accounts, the company follows the guidance provided in IAS2 Inventories.


(a) Compute, in accordance with IAS2 Inventories, the value at which the inventory of vehicles as at 28 February 2018 should be shown in the final accounts of J&T Ltd.

(b) Determine the total cost of the abnormal wastage of materials that has been incurred on the conversion of the four vehicles.

(c) Calculate the total cost of material P that has been used and the cost of the inventory of this material as at 28 February 2018, using each of the following cost formulas:

(i) First-in, first-out (FIFO).

(ii) Weighted average cost (AVCO).


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