Heart to You Limited run an online jewelry shop on eBay (the online auction website) from a garage in Bournemouth and has asked your firm to prepare its financial statements for the year to 31st December 2020.

You and your colleagues attended the stock take, socially distancing throughout, and noticed a number of discrepancies between those items which were physically present on the day and the stock control system.

The quantities recorded in units were as follows:
Bracelets Rings

Earrings
(pairs) Charms

345 231

302 605

Per the firm’s computerized stock system
Units verified during the stock take on 31/12/2020, auditor present

198 165

203 154

You have been given the following additional information:

•  Retail prices for the items; earrings are £10 per pair, bracelets are £30 each,

  charms are £48 each and rings are £120 each.

•  Costs incurred to make each item held in stock have been agreed as follows: It

  costs £12 per pair of earrings, £14 per bracelet, £25 per charm and £58 per

  ring.

•  Further costs to complete:

o The charms are personalized before being dispatched and this costs £3.50 per unit sold. This has not been completed at the year end;

o eBay fees cost the business 10% of the retail price per unit; o Postage and packaging is £2 per unit.

Required:

a) With the information above, calculate the value of closing inventory in accordance with IAS 2 which will be included in the financial statements for the year ended 31st December 2020.

(10 marks)

The discrepancies noted during the stocktake have raised concerns amongst your team. Internal controls are one method of reducing such issues.

b) Explain possible reasons for these discrepancies and suggest some internal control mechanisms which would help to alleviate this issue.
Please use the question to illustrate your points wherever possible.

(6 marks) Question three continued.../

Question three continued.../

Your friend has set up a company and started trading on 1st December 2020. She is preparing her inventory records and knowing you’re an accountant has asked you to help her in adopting IAS 2.

You have been provided with the following:

Purchases by month: November December
January

Quantity £/unit 320 12.30 102 14.50 210 12.75

£ 3,936 1,479 2,678

380 units were sold in December and 92 units were sold in January.

c) Using the information provided, establish the value of inventories as at 31st December 2020 and 31st January 2021 and cost of sales for each month using both the first-in-first-out (FIFO) and average cost (AVCO) methods.

Your answer should conclude on which method you would recommend is adopted, with reasoning.

Answer rating: 100% (QA)

a The value of closing inventory in accordance with IAS 2 would be Bracelets 345 units x 30 per unit ... View the full answer