Question $8$

a$)$ Explain the term "inventories" as defined by IAS$2$ Inventories.

b$)$ Penda manufacturing company's inventory at the end of an accounting period includes a

finished product with the following costs to date:

Notes:

I. All of these costs exclude VAT. The company is able to recover any VAT which it is

charged by its suppliers but cannot recover import duties.

II$.$ One$-$fifth of the materials included above were wasted as the result of an abnormal

machine malfunction.

III. Fixed production overheads are allocated to products on the assumption that

production is running at normal capacity $($i$.$e$.80$ units$).$ In fact, production was

unusually high $($i$.$e$.100$ units$)$ during the period in which this product was made.

The total fixed production overheads for the year is $240,000.$

Required:

Calculate the cost of this product in accordance with the requirement of IAS$2$ and explain

why each cost item listed above should be included or excluded from the calculation of the

cost of the product.

c$)$ Haysham Ltd$.$ purchased units of 'Prings as follows:Also during the month, the following units were sold:

$\backslash$table$[[$March$,10,160$ units$],[,14,200$ units$],[,30,180$ units$]]$

Assume that there were no opening inventories.

Required:

Determine the cost of goods sold and closing inventory figures, using the perpetual method, using firstly the First$-$In$,$ First$-$Out $($FIFO$)$ and then the Weighted Average $($AVCO$)$ cost flow assumption.

$(8$ marks$)$

d$)$ Harvey plc is manufacturing company. The company's inventory at $30$ June $2017$ includes the following items of work in progress:

$\backslash$table$[[,$Product X$,$Product Y$],[$Number of units held at $30$ June $2017,6,000,4,000],[$Costs incurred per unit to date,$9,11],[$Estimated further costs per unit to completion,$6,9],[$Estimated selling costs per unit,$3,5],[$Estimated selling price per unit,$16,32]]$

The company complies with IAS$2$ Inventories.

Required:

i$.$ Define the term "net realisable value" and explain how inventories should be measured in accordance with IAS$2$

$(3$ marks$)$

ii$.$ Calculate the figure at which the work in progress of Harvey plc should be reported in the company's financial statements for the year to $30$ June $2017.$