Question

7- By the end of the year CIMA entity had 100 units in warehouse of product X. Units are so far reported at total cost of $10,000. The selling price of the product has fallen to $110 per unit and cost to sell each unit is $25 per unit. Compute the value at which inventory should be reported in the statement of financial position and explain the rule you used to support your answer. loo units loob

Answer 1

7.

Particulars
No of Units	100
Total Cost ($)	10,000
Cost per unit	100
Selling Price (a)	110
Cost to Sell (b)	25
Net Realisable Value = (a-b)	85

As per IAS 2, Inventory should be recorded at Cost or Net Realisable Value, whichever is lower.

Value of Inventory = $85x100=

8,500

1. There can be several reasons for Negative Cash flow from Operating activities like

a. Delayed remittances received from debtors

b. Bulky payments made to Creditors

c.Losses incurred during the current year

The negative Cash flows from operating activities should not be a matter of concern in short term but in long term, management should generate positive cash flows from operating activities for the business to run smoothly.

2. Significant amounts spent on R&D, Brand Development and advertising should not be recognised as an intangible asset, even though the expenditure incurred may provide future economic benefits; it should charge all such costs to the income statement. Expenditure on advertising and promotional activities should be expensed when incurred as per IAS 38.

3. Market Value of firm = Market Price of share x No of shares

Book Value of firm = Book value of share x No of shares

From the above equation, it can be clearly said that Market Value of firm shall be higher than book value of share when market price of share is greater than book value of share, i.e. the fair market value of assets are greater than the book value of the assets

4. The characteristic of an assets are

a.) Should be controlled by the entity

b.) Should result from prior events or transactions

c.) Should result in future economic benefits flowing into the entity