Inventory Adjustment – NBC Institute

CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

Question

Bata Plc, which operates in the manufacturing sector, has been surviving the challenges operating in the Nigerian economic environment. The draft Statements of Financial Position of Bata Plc and its subsidiaries as at October 31, 2016 are as follows:

The following information is relevant to the preparation of the group financial statements:

Acquisition Dates: Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013, at costs of N852 million and N258 million, respectively. Jewe Plc acquired 70% of Gaba’s share capital on November 1, 2013.
Retained Earnings at Acquisition:

Fair Values at Acquisition: The fair values of Jewe and Gaba’s net assets were N930 million and N660 million, respectively, including non-depreciable land. The fair value of non-controlling interest (NCI) was N390 million for Jewe and N330 million for Gaba. Bata Plc adopts the full goodwill method under IFRS 3.
Impairment: Impairment testing shows Jewe suffered a loss of N60 million, but Gaba had no impairment.
Intra-group Sales: Bata sold inventory to Jewe and Gaba for N480 million and N360 million, respectively, invoicing with a 25% markup on cost. At year-end, half of Jewe’s inventory remains unsold, while Gaba sold its entire stock to third parties.
Deep Discount Bond: Bata purchased a bond for N500 million with a redemption value of N740.75 million in three years. The bond’s effective interest rate is estimated at 14%. The Accountant has not yet recorded amortized cost for this financial asset.

Required: Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016.

Answer

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Tags: Consolidation, Financial Assets, Financial Position, Impairment, Intra-Group Sales, Inventory Adjustment
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)

FA – Nov 2012 – L1 – SB – Q38 – Accounting for Incomplete Records

Identify the use of the Branch Inventory Adjustment Account in branch accounting.

Question

Where goods are invoiced by a head office to its branch at cost-plus, the Branch Inventory Adjustment Account is used to determine?

Answer

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Tags: Branch Accounting, Cost-plus Accounting, Inventory Adjustment
Level: Level 1

Topic: Accounting from Incomplete Records
Series: NOV 2012

FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)

Calculates the total lower of cost and NRV adjustment required for Bala PLC’s inventory and prepares the necessary journal entry.

Question

b. Bala PLC prepares its financial statements on December 31, 2023. At the end of the year, Bala PLC holds three different inventory items. The following information is available for each item:

Item A:
Cost as at December 31, 2023: ₦1,500,000
Estimated selling price: ₦1,800,000
Estimated costs of completion, disposal, and selling expenses: ₦200,000
Item B:
Cost as at December 31, 2023: ₦2,250,000
Estimated selling price: ₦2,000,000
Estimated costs of completion, disposal, and selling expenses: ₦300,000
Item C:
Cost as at December 31, 2023: ₦3,000,000
Estimated selling price: ₦3,200,000
Estimated costs of completion, disposal, and selling expenses: ₦400,000

Required:

i. Calculate the total lower of cost and NRV adjustment required for inventory of Bala PLC. (2 Marks)

ii. Prepare the necessary journal entry to adjust the inventory to its lower of cost and NRV. (3 Marks)

Answer

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Tags: Inventory Adjustment, Inventory Valuation, Lower of Cost and NRV
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2024

CR – May 2018 – L3 – Q5b – Regulatory Framework and Ethics

Identify the ethical issue related to inventory adjustment and explain the Finance Manager’s course of action.

Question

The Finance Manager of Integrity Sports, a Takoradi-based manufacturer and retailer of sporting goods, prepares quarterly accounts for his boss, the Finance Director. At the end of the first quarter of 2017, the Finance Manager identified that net assets were below the level required by a bank covenant that the company had entered into with Unique Bank. He therefore alerted the Finance Director to this. The following week, the Finance Manager identified that amended quarterly accounts had been sent to the bank by the Finance Director, in which the inventory figure had been increased. The same issue arose at the end of the second quarter of 2017, and again the Finance Manager noted that the accounts sent to the bank included a different inventory figure from those that he had prepared the previous week. The Finance Manager is sure that cut-off procedures and valuation were correctly adhered to and this was done under his supervision. He therefore asked the Finance Director why the figures had changed, and the Finance Director responded:

“The adjustment is just for some goods held at one of our customer’s retail premises – we missed it out from the stock count. Don’t worry, I’ve got it all in hand!”

The Finance Manager then reviewed the contract with the customer in question and noted that it clearly states that the customer will be supplied with goods as ordered and has no right of return in the case of unsold goods. He also noted that Integrity Sports has sold goods to this customer for a number of years on the same terms, and no adjustment has ever been made before. Both the Finance Manager and Finance Director are Chartered Accountants.

Required:
i) Explain why the inventory adjustment suggests an ethical issue. (6 marks)
ii) Explain FOUR courses of action that the Finance Manager should take in respect of the issue that he has identified. (4 marks)

Answer

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Tags: Corporate Governance, Ethics, Financial Reporting, Inventory Adjustment, Professional Conduct
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2018

FA – July 2023 – L1 – Q4 – Preparation of limited liability company financial statements

Prepare the statement of profit or loss and statement of financial position for a limited liability company using the provided trial balance and adjustments.

Question

The following trial balance relates to Pakro Ltd at 31 July 2022:

The following matters remain to be adjusted for in preparing the financial statements for the year ended 31 July 2022:

The cost of inventory of GHȼ 38,400 for the year ended 31 July 2022 was based on an inventory count on 4 August 2022. Between 31 July 2022 and 4 August 2022, the following transactions took place:

Item	GHȼ
Purchases of goods	8,000
Sales of goods (profit margin 20% on sales)	12,000
Goods returned by Pakro Ltd to a supplier	800

Trade receivables totaling GHȼ24,000 are to be written off and allowance for receivables is to be adjusted to GHȼ8,000. The irrecoverable debt expense is to be included in administrative expenses.
Pakro Ltd receives rent for subletting part of its building. The rent, which is receivable quarterly in advance, was received as follows:

Date of receipt	Period covered	GHȼ
1 July 2021	3 months to 30 September 2021	7,200
1 October 2021	3 months to 31 December 2021	7,200
30 December 2021	3 months to 31 March 2022	9,000
4 April 2022	3 months to 30 June 2022	9,000
1 July 2022	3 months to 30 September 2022	9,000

The loan of GHȼ60,000 was taken out on 1 January 2022 with annual interest of 12%. The interest is payable in equal instalments on the first day of April, July, October, and January in arrears. The loan is repayable in full during the financial year ended 31 July 2026.
Depreciation is to be provided for as follows:
- Buildings 2.5% per year on cost
- Plant and equipment 25% per year on cost
- 70% of the depreciation is to be charged in cost of sales, and 15% each in distribution costs and administrative expenses.
Current year income tax charged was GHȼ18,105.

Required:

a) Prepare the Statement of Profit and Loss for the year ended 31 July 2022. (10 marks)
b) Prepare the Statement of Financial Position as at 31 July 2022. (10 marks)

Answer

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Tags: Depreciation, Financial Statements, Income Statement, Inventory Adjustment, Loan Interest, Rent Income, Statement of Financial Position, Trial Balance
Level: Level 1

Topic: Preparation of limited liability company financial statements
Series: JULY 2023

CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

Question

The following information is relevant to the preparation of the group financial statements:

Acquisition Dates: Bata Plc acquired 60% of the share capital of Jewe Plc on November 1, 2012, and 10% of Gaba Plc on November 1, 2013, at costs of N852 million and N258 million, respectively. Jewe Plc acquired 70% of Gaba’s share capital on November 1, 2013.
Retained Earnings at Acquisition:

Fair Values at Acquisition: The fair values of Jewe and Gaba’s net assets were N930 million and N660 million, respectively, including non-depreciable land. The fair value of non-controlling interest (NCI) was N390 million for Jewe and N330 million for Gaba. Bata Plc adopts the full goodwill method under IFRS 3.
Impairment: Impairment testing shows Jewe suffered a loss of N60 million, but Gaba had no impairment.
Intra-group Sales: Bata sold inventory to Jewe and Gaba for N480 million and N360 million, respectively, invoicing with a 25% markup on cost. At year-end, half of Jewe’s inventory remains unsold, while Gaba sold its entire stock to third parties.
Deep Discount Bond: Bata purchased a bond for N500 million with a redemption value of N740.75 million in three years. The bond’s effective interest rate is estimated at 14%. The Accountant has not yet recorded amortized cost for this financial asset.

Required: Prepare a Consolidated Statement of Financial Position for Bata Plc and its subsidiaries as at October 31, 2016.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Consolidation, Financial Assets, Financial Position, Impairment, Intra-Group Sales, Inventory Adjustment
Level: Level 3

Topic: Consolidated Financial Statements (IFRS 10)

FA – Nov 2012 – L1 – SB – Q38 – Accounting for Incomplete Records

Identify the use of the Branch Inventory Adjustment Account in branch accounting.

Question

Where goods are invoiced by a head office to its branch at cost-plus, the Branch Inventory Adjustment Account is used to determine?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Branch Accounting, Cost-plus Accounting, Inventory Adjustment
Level: Level 1

Topic: Accounting from Incomplete Records
Series: NOV 2012

FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)

Calculates the total lower of cost and NRV adjustment required for Bala PLC’s inventory and prepares the necessary journal entry.

Question

b. Bala PLC prepares its financial statements on December 31, 2023. At the end of the year, Bala PLC holds three different inventory items. The following information is available for each item:

Item A:
Cost as at December 31, 2023: ₦1,500,000
Estimated selling price: ₦1,800,000
Estimated costs of completion, disposal, and selling expenses: ₦200,000
Item B:
Cost as at December 31, 2023: ₦2,250,000
Estimated selling price: ₦2,000,000
Estimated costs of completion, disposal, and selling expenses: ₦300,000
Item C:
Cost as at December 31, 2023: ₦3,000,000
Estimated selling price: ₦3,200,000
Estimated costs of completion, disposal, and selling expenses: ₦400,000

Required:

i. Calculate the total lower of cost and NRV adjustment required for inventory of Bala PLC. (2 Marks)

ii. Prepare the necessary journal entry to adjust the inventory to its lower of cost and NRV. (3 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Inventory Adjustment, Inventory Valuation, Lower of Cost and NRV
Level: Level 1

Topic: Accounting for Inventories (IAS 2)
Series: MAY 2024

CR – May 2018 – L3 – Q5b – Regulatory Framework and Ethics

Identify the ethical issue related to inventory adjustment and explain the Finance Manager’s course of action.

Question

“The adjustment is just for some goods held at one of our customer’s retail premises – we missed it out from the stock count. Don’t worry, I’ve got it all in hand!”

Answer

Find Related Questions by Tags, levels, etc.

Tags: Corporate Governance, Ethics, Financial Reporting, Inventory Adjustment, Professional Conduct
Level: Level 3

Topic: Regulatory Framework and Ethics
Series: MAY 2018

FA – July 2023 – L1 – Q4 – Preparation of limited liability company financial statements

Prepare the statement of profit or loss and statement of financial position for a limited liability company using the provided trial balance and adjustments.

Question

The following trial balance relates to Pakro Ltd at 31 July 2022:

The following matters remain to be adjusted for in preparing the financial statements for the year ended 31 July 2022:

The cost of inventory of GHȼ 38,400 for the year ended 31 July 2022 was based on an inventory count on 4 August 2022. Between 31 July 2022 and 4 August 2022, the following transactions took place:

Item	GHȼ
Purchases of goods	8,000
Sales of goods (profit margin 20% on sales)	12,000
Goods returned by Pakro Ltd to a supplier	800

Trade receivables totaling GHȼ24,000 are to be written off and allowance for receivables is to be adjusted to GHȼ8,000. The irrecoverable debt expense is to be included in administrative expenses.
Pakro Ltd receives rent for subletting part of its building. The rent, which is receivable quarterly in advance, was received as follows:

Date of receipt	Period covered	GHȼ
1 July 2021	3 months to 30 September 2021	7,200
1 October 2021	3 months to 31 December 2021	7,200
30 December 2021	3 months to 31 March 2022	9,000
4 April 2022	3 months to 30 June 2022	9,000
1 July 2022	3 months to 30 September 2022	9,000

The loan of GHȼ60,000 was taken out on 1 January 2022 with annual interest of 12%. The interest is payable in equal instalments on the first day of April, July, October, and January in arrears. The loan is repayable in full during the financial year ended 31 July 2026.
Depreciation is to be provided for as follows:
- Buildings 2.5% per year on cost
- Plant and equipment 25% per year on cost
- 70% of the depreciation is to be charged in cost of sales, and 15% each in distribution costs and administrative expenses.
Current year income tax charged was GHȼ18,105.

Required:

a) Prepare the Statement of Profit and Loss for the year ended 31 July 2022. (10 marks)
b) Prepare the Statement of Financial Position as at 31 July 2022. (10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Financial Statements, Income Statement, Inventory Adjustment, Loan Interest, Rent Income, Statement of Financial Position, Trial Balance
Level: Level 1

Topic: Preparation of limited liability company financial statements
Series: JULY 2023

Question Tag: Inventory Adjustment

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CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

FA – Nov 2012 – L1 – SB – Q38 – Accounting for Incomplete Records

Identify the use of the Branch Inventory Adjustment Account in branch accounting.

FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)

Calculates the total lower of cost and NRV adjustment required for Bala PLC’s inventory and prepares the necessary journal entry.

CR – May 2018 – L3 – Q5b – Regulatory Framework and Ethics

Identify the ethical issue related to inventory adjustment and explain the Finance Manager’s course of action.

FA – July 2023 – L1 – Q4 – Preparation of limited liability company financial statements

Prepare the statement of profit or loss and statement of financial position for a limited liability company using the provided trial balance and adjustments.

CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

FA – Nov 2012 – L1 – SB – Q38 – Accounting for Incomplete Records

Identify the use of the Branch Inventory Adjustment Account in branch accounting.

FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)

Calculates the total lower of cost and NRV adjustment required for Bala PLC’s inventory and prepares the necessary journal entry.

CR – May 2018 – L3 – Q5b – Regulatory Framework and Ethics

Identify the ethical issue related to inventory adjustment and explain the Finance Manager’s course of action.

FA – July 2023 – L1 – Q4 – Preparation of limited liability company financial statements

Prepare the statement of profit or loss and statement of financial position for a limited liability company using the provided trial balance and adjustments.

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CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

You're reporting an error for "CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)"

FA – Nov 2012 – L1 – SB – Q38 – Accounting for Incomplete Records

Identify the use of the Branch Inventory Adjustment Account in branch accounting.

You're reporting an error for "FA – Nov 2012 – L1 – SB – Q38 – Accounting for Incomplete Records"

FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)

Calculates the total lower of cost and NRV adjustment required for Bala PLC’s inventory and prepares the necessary journal entry.

You're reporting an error for "FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)"

CR – May 2018 – L3 – Q5b – Regulatory Framework and Ethics

Identify the ethical issue related to inventory adjustment and explain the Finance Manager’s course of action.

You're reporting an error for "CR – May 2018 – L3 – Q5b – Regulatory Framework and Ethics"

FA – July 2023 – L1 – Q4 – Preparation of limited liability company financial statements

Prepare the statement of profit or loss and statement of financial position for a limited liability company using the provided trial balance and adjustments.

You're reporting an error for "FA – July 2023 – L1 – Q4 – Preparation of limited liability company financial statements"

CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)

Prepare consolidated financial statements for Bata Plc and subsidiaries including goodwill, NCI, and intra-group adjustments.

You're reporting an error for "CR – Nov 2016 – L3 – Q1a – Consolidated Financial Statements (IFRS 10)"

FA – Nov 2012 – L1 – SB – Q38 – Accounting for Incomplete Records

Identify the use of the Branch Inventory Adjustment Account in branch accounting.

You're reporting an error for "FA – Nov 2012 – L1 – SB – Q38 – Accounting for Incomplete Records"

FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)

Calculates the total lower of cost and NRV adjustment required for Bala PLC’s inventory and prepares the necessary journal entry.

You're reporting an error for "FA – May 2024 – L1 – SB – Q5b – Accounting for Inventories (IAS 2)"

CR – May 2018 – L3 – Q5b – Regulatory Framework and Ethics

Identify the ethical issue related to inventory adjustment and explain the Finance Manager’s course of action.

You're reporting an error for "CR – May 2018 – L3 – Q5b – Regulatory Framework and Ethics"

FA – July 2023 – L1 – Q4 – Preparation of limited liability company financial statements

Prepare the statement of profit or loss and statement of financial position for a limited liability company using the provided trial balance and adjustments.

You're reporting an error for "FA – July 2023 – L1 – Q4 – Preparation of limited liability company financial statements"

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