BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The closing inventory of Epsilon amounted to $284, 000 at 30 September 20X4, the statement of financial position date. This total includes two inventory lines about which the inventory taker is uncertain.(1) 500 items which had cost $15 each and which were included at $7, 500. These items were found to have been defective at the statement of financial position date. Remedial work after the statement of financial position date cost $1, 800 and they were then sold for $20 each. Selling expenses were $400.(2) 100 items which had cost $10 each. After the statement of financial position date they were sold for $8 each, with selling expenses of $150.
A
$283, 650
B
$283, 800
C
$292, 150
D
$283, 950
Explanation: 

Detailed explanation-1: -The closing inventory of Epsilon amounted to $284, 000 at 30 September 20X4, the statement of financial position date. This total includes two inventory lines about which the inventory taker is uncertain. (1) 500 items which had cost $15 each and which were included at $7, 500.

Detailed explanation-2: -The basic method for calculating ending inventory is straightforward. You simply take the beginning inventory at the outset of the current accounting period, add the cost of new purchases and subtract the cost of goods sold (COGS).

Detailed explanation-3: -The first step to calculating beginning inventory is to figure out the cost of goods sold (COGS). Next, add the value of the most recent ending inventory and then subtract the money spent on new inventory purchases. The formula is (COGS + ending inventory) – purchases.

Detailed explanation-4: -Both US GAAP and IFRS stipulate that the costs that are to be included in inventories are “all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.”

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