Question

QUESTION 1
a. Kpogo Ltd has the following products in inventory at the end of 2019:
Units Cost per unit GH¢
XYZ (completed) 540 22
ABC (part complete) 280 26
Each product normally sells at GH¢34 per unit. Due to the difficult trading conditions, Kpogo Ltd
intends to offer a discount of 15% per unit and expects to incur GH¢4 per unit in selling costs.
GH¢10 per unit is expected to be incurred to complete each unit of ABC.
Required:
In accordance with IAS 2 Inventories, at what amount should inventory be stated in the financial
statements of Kpogo Ltd as at 31 December 2019? (3 marks)
b. According to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors,
an entity must select and apply its accounting policies consistently from one period to the
next and among various items in the financial statements. However, an entity may change
its accounting policies under certain conditions.
Required:
Identify the circumstances under which it may be appropriate to change accounting policy
in accordance with the guidance given in IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors. (2 marks)

KINDLY ANSWER ASSAP
VERY URGENT

Answer 1

Dear Student,

I tried to make solution simple. Please like the solution. Thanks.

Part (a)

As per IAS-2, inventory is valued at lower of cost or Net Realizable value. Net realizable value means Expected selling price less cost to sell the product. Trade discount is given on quantity so it is deducted. Cash discount not given in question but if given then it is not deducted as cash discount is given for prompt payment.

If product is not completed then cost which is expected to incur should be deducted from NRV. It is not added to cost per unit.

Product	Status	Units	Cost per unit		Selling Price per unit	Cost to sell	Cost to sell (discount)	Less cost to complete	Net Realizable Value (NRV)		Lower of cost and NRV	Inventory Value (units x lower of cost or NRV)
XYZ	Completed	540	22.00		34.00	-4.00	-5.10	-	24.90		22.00	11,880
ABC	Part Completed	280	26.00		34.00	-4.00	-5.10	-10.00	14.90		14.90	4,172

Part (b)

In the following circumstances under which an entity can change accounting policy as per IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

(1) When it is required by any IFRS, or

(2) When change in accounting policy would result into Financial Statements providing more useful information. Information is useful when it is reliable and relevent.