Question

Secondhand Rose, an antique dealer, bought the full contents of an estate sale for $25,000 on September 1, 2020. The purchase was paid for in cash, but Rose needed to pay a mover $575 to transport the items from Chatham, NJ to her warehouse in Flanders. Because some of the items from the sale were fragile, Rose purchased bubble wrap and other packing supplies at Staples for $200 on credit and purchased insurance on the transportation for $75. Rose also hired 3 students from County College to help her unpack and clean her purchases, for a total cost of $300.

Determine the cost of the inventory Rose purchased at the estate sale.

Answer 1

Both US GAAP and IFRS provide that the costs to be included in cost of inventories are “all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.” Inventories costs therefore, include everything necessary to buy the inventory and making it ready for sale. For example, this can include raw materials, labor, manufacturing overhead, freight-in, certain administrative costs and storage.

Here, the packing, transport and insurance costs were incurred in bringing the inventories to their present location and without unpacking and cleaning the goods purchased, the inventories could not be brought in to a condition ready for sale. Hence, all these costs will form the part of the cost of the inventory Rose purchased at the estate sale.

Cost of full contents of the estate sale $25,000

Packing $200

Transportation From Chatham to Flander   $575

Transportation insurance    $75

Cost of unpacking and cleaning the goods    $300

Total cost of inventoty $26,150