ACCA Applied Knowledge · Financial Accounting · Inventories
A company has two items at the year end. Item A: cost $8,000, NRV $9,500. Item B: cost $12,000, NRV $10,000. Opening inventory was $18,000 and purchases were $75,000. Applying IAS 2 item by item, what is the cost of sales?
Cost of sales is $75,000. Applied item by item, item A stays at cost of $8,000 and item B is written down to NRV of $10,000, giving closing inventory of $18,000. Cost of sales is then opening $18,000 plus purchases $75,000 less closing $18,000.
- A$73,000Correct
- B$75,000
- C$71,500
- D$72,000
Explanation
Closing inventory = A at cost 8,000 (lower than NRV) + B at NRV 10,000 = $18,000. Cost of sales = 18,000 + 75,000 - 18,000 = $75,000. Netting the items (cost 20,000 vs NRV 19,500) would be wrong, as would valuing A at NRV. The correct figure is $75,000.
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