Question

D0.139 10.008 2009- to? 8.02 Questions -33 IFRS 6-49 rcises, Exercises, Problems, and many additional resources are eyPLUS. Problems relate to material in the appendices to the chapter. als effective inventory Oscar has been paying out all of its net income as dividends. What adverse effects may result from this policy? classified as inven- (13) Kyle Adams is studying for the next accounting mid-term acteristics? examination. What should Kyle know about (a) departing from the up take the physical cost basis of accounting for inventories and (b) the meaning of "net Ben what this job realizable value in the lower-of-cost-or-net realizable value method? Hendrix Entertainment Center has 5 TVs on hand at the balance Company on De- sheet date that cost $400 each. The net realizable value is $380 per unit. Under the lower-of-cost-or-net realizable value basis of account yer on January 6. ing for inventories, what value should Hendrix report for the TVs on e goods being in- and (2) Martin's the balance sheet? Why? (15)Warnke Stores has 20 toasters on hand at the balance sheet date. Each costs $27. The net realizable value is $30 per unit. Under the ompany include lower-of-cost-or-net realizable value basis of accounting for invento- ries, what value should Warnke report for the toasters on the balance hich it paid the sheet? Why? but Topp was harges of $50. (16/ Sayaovang Company discovers in 2020 that its ending inventory at December 31, 2019, was $7,000 understated. What effect will this error have on (a) 2019 net income, (b) 2020 net income, and (c) the ing point and combined net income for the 2 years? 17. Dreher Company's balance sheet shows Inventory $162.800. What st of goods additional disclosures should be made? ical flow of Tactical and 18. Under what circumstances might inventory turnover be too high? That is what possible negative consequences might occur? 19. What inventory cost flow does Apple use for its inventories? tage of the (Hint: You will need to examine the notes for Apple's financial statements.)
  

Can u help me on the circle ones, #s 13,14, 15, and 16??

Answer 1

1. The goods should always be valued at cost, except in the case where the net realisable value of the goods falls below the cost, thus one can depart from the cost basis of accounting only if the net realisable value of such goods falls below the cost. The meaning of net realisable value is the value which can now be realised from the market if the goods are sold now. That is the amount which will be paid by the market for your goods at present. Valuation of stock at lower of cost of net realisable value is the prudent basis of recognising the stock for market fluctuations.
2. Hendrix entertainment has 5 TV's whose cost is 400 but the realisable value of such TV's is 380 only, in such case they should be valued at 380 only as per the lower of cost or net realisable value principle. The reason for the same is prudence, as discussed above. Stick should not be shown in balance sheet over the value they can recognise.
3. Warnke stores has 20 toasters whose cost is 27 but the net realisable value is 30, but as per the concept warnke stores should continue the value of stock at 27 only and not 30 until it is realised by the company. This is because of prudent recognition of revenue.
4. Understatement of closing inventory will have effect on the net income, which is as follows,
   1. 2019 net income : understating closing inventory will have a negative impact on the net income, as inventory is understated by 7000, net income will also gets reduced to the same extent.
   2. 2020 net income : ending inventory of 2019 will be the opening inventory of 2020, so opening inventory of 2020 is understated by 7000, understatement of opening inventory will have a positive impact on net income, so net income will increase by 7000.
   3. Combined net income of both the years, there is a nil effect on the combined net income as net income is reduced by 7000 in 2019 and increased by 7000 in 2020.
5. Student may cleary understand the effect of under and o er stating on net income by taking an example t account of profit and loss and do practically in order to excel in these type of effects, once understood it will be easy to imagine the effects.