Question

Question 5

Alto Imports ending inventory was assigned a cost of $14,600 as a result of a physical stock-take on 30 June 2020.

A review of the company’s records revealed the following information:

• Alto Imports had recorded a $2,900 invoice (excluding GST) from a supplier for goods shipped ExW on 26 June 2020. The goods were not included in the physical inventory count because they had not yet arrived at the warehouse of Alto Imports by 30 June.
• Alto Imports had recorded a $1,900 invoice (excluding GST) from a supplier for goods shipped DPP on 28 June 2020. The goods were not included in the physical inventory count because they had not yet arrived at the warehouse of Alto Imports by 30 June.
• Alto Imports had goods valued at $3,600 (excluding GST) out on consignment on 30 June 2020 that were included in the physical inventory count.

Required:

1. For each of the above, determine the effects on Alto Imports 30 June inventory account balances.

2. What is correct value of inventory on hand at 30 June 2020?

Answer 1

Answer :

a.

Effects on Alto imports 30 June Inventory Accounts Balances.

1.

Import of goods worth $ 2,900 ( excluding GST ) from supplier shipped under ExW contract on June 26 not received at buyer's warehouse till June 30.

As above import is made using Ex-Work contract in which ownership and risk transfers at time of shippment of goods. Buyer is responsible for goods once goods shipped.

So, treatment given is INCORRECT as it will be part of Alto's Inventory as ownership is transferred from supplier to Alto.

2.

Import of goods worth $ 1,900 ( excluding GST ) from supplier shipped under DDP contract on June 28 not received at buyer's warehouse till June 30.

As above import is made using Delivery Duty Paid contract in which the ownership , risk and payment of duties and other related compliances are responsibilities of seller till the receipt of goods at buyer's place of business.(Warehouse)

So, treatment given is correct it will not be part of Alto's Inventory as ownership is not transferred from supplier to Alto.

3.

Goods received on CONSIGNMENT will be part of CONSIGNOR'S Inventory that is supplier's Inventory. Consingee should not include such ending inventory in its balance sheet as ownership remains with CONSIGNOR for unsold goods received on Consignment.

So,Treatment given by Alto by including consignment goods in physical counts of Inventory is NOT CORRECT. therefore should be reversed.

b.

Using above explanation of transaction.

Correct Value of INVENTORY = Ending inventory as per physical counts + import of goods under ExW contract - Goods on Consignment.

$ 14,600 + $ 2,900 -$ 3,600.

$ 13,900.