Question
In: Accounting
QUESTION 1 IT Tech Bhd follows the practice of valuing inventory at the Lower of Cost...
QUESTION 1
IT Tech Bhd follows the practice of valuing inventory at the Lower of Cost or Net Realizable Value (LCNRV). The following information is available from the company’s inventory records as of 31 December 2018.
|
Item |
Quantity |
Cost per Unit (RM) |
Estimated selling Price/ Unit (RM) |
Completion and Selling Cost /Unit |
|
Speaker |
300 |
65.00 |
75.50 |
4.60 |
|
Keyboard |
550 |
25.00 |
33.90 |
2.80 |
|
Pendrive |
800 |
18.00 |
16.60 |
0.65 |
|
Monitor |
230 |
135.00 |
142.30 |
8.70 |
REQUIRED:
- Calculate the LCNRV using the “individual-item” approach. Prepare the journal entries required as at 31 December 2018 assuming that a loss method and the Allowance to Reduce Inventory to NRV Account is used to record for the write down of the inventory.
- Assume that at 31 December 2018, the account of Allowance to Reduce Inventory to NRV had a credit balance of RM2,200. Determine the amount of the gain or loss that would be recorded due to the change in the Allowance to Reduce Inventory to NRV account as in (a). Show the related journal entry.
- Identify TWO (2) differences between consignor and consignee in a consignment basis.
Solutions
Expert Solution
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| IT Tech Bhd | ||||||||
| Answer a | A | B | C=A*B | D | E | F=D-E | G= Lower of B or F | H=A*G |
| Item | Units | Cost Per unit | Cost | Sell price | Selling Cost /Unit | NRV per unit | Lower of Cost or NRV per unit | Lower of Cost or NRV |
| Speaker | 30.00 | 65.00 | 1,950.00 | 75.50 | 4.60 | 70.90 | 65.00 | 1,950.00 |
| Keyboard | 550.00 | 25.00 | 13,750.00 | 33.90 | 2.80 | 31.10 | 25.00 | 13,750.00 |
| Pen drive | 800.00 | 18.00 | 14,400.00 | 16.60 | 0.65 | 15.95 | 15.95 | 12,760.00 |
| Monitor | 230.00 | 135.00 | 31,050.00 | 142.30 | 8.70 | 133.60 | 133.60 | 30,728.00 |
| Ending Inventory | 61,150.00 | 59,188.00 | ||||||
| Decline in Value | 1,962.00 |
| Loss method | ||
| Journal Entry | ||
| Account | Debit $ | Credit $ |
| Loss Due to Decline of Inventory | 1,962.00 | |
| Inventory | 1,962.00 | |
| Allowance to Reduce Inventory to NRV Account | ||
| Journal Entry | ||
| Account | Debit $ | Credit $ |
| Loss Due to Decline of Inventory | 1,962.00 | |
| Allowance to Reduce Inventory to NRV Account | 1,962.00 | |
| Answer b | Amount $ |
| Balance in Allowance to Reduce Inventory to Net Realizable Value | 2,200.00 |
| Less: Decline in Value | 1,962.00 |
| Gain | 238.00 |
| Journal Entry | ||
| Account | Debit $ | Credit $ |
| Allowance to Reduce Inventory to NRV Account | 238.00 | |
| Gain on inventory valuation | 238.00 | |
| Answer c |
| Difference between Consignor and Consignee- |
| 1. The consignor is the sender of the consignment and consignee is the receiver of the consignment. |
| 2. The consignor is the owner of the goods sent on consignment. Consignee is no the owner of those goods. At the end of the year any unsold stock will be included in the inventory of consignor and not consignee. |
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