1. HKAS 2 Inventory

2. E8-9: Goods in transit Kwok’s inventory balance on December 31, 2009, was $165,000 (based on a 12/31/09 physical count) before considering the following transactions: 1. Goods shipped to Kwok f.o.b. destination on December 20, 2009, were received on January 4, 2010 (next year). The invoice cost was $30,000. 2. Goods shipped to Kwok f.o.b. shipping point on December 28, 2009, were received on January 5, 2010 (next year).The invoice cost was $17,000. 3. Goods shipped from Kwok to a customer f.o.b. destination on December 27, 2009, were received on January 3, 2010. Sales price: $40,000 and the merchandise cost $22,000. 4. Goods shipped from Kwok to a customer f.o.b. destination on December 26, 2009, were received on December 30, 2009. The sales price was $20,000 and the merchandise cost $13,000. 5.Goods shipped from Kwok to a customer f.o.b. shipping point on December 28, 2009, were received on January 4, 2010. The sales price was $25,000 and the merchandise cost $12,000. Required: Determine the correct inventory amount in Kwok's 2009 FP.

3. Answer Goods in transit refers to “merchandise and other inventory items” that have been shipped by the seller, but have not yet been received by the purchaser. The terms of the sale will indicate which company should report the goods in transit as its inventory as of December 31. If the terms are FOB shipping point, the seller will record a December sale and receivable, and will not include the goods in transit as its inventory. If the terms of the sale are FOB destination, the seller will not have a sale and receivable until the buyer receive the goods. This means the seller must report the cost of the goods in transit in its inventory on December 31. In this case, (1) should be excluded from the buyer (Kwok), (4) and (5) should be excluded from the seller (Kwok), (2) should be included in the buyer (Kwok) and (3) should be included in the seller (Kwok). Therefore, The correct inventory amount to be reported should be $165,000 +(2) $17,000 +(3.) $22,000 = $204,000.

4. E8-10: Goods in transit; consignment At December 31, 2009, year-end inventory of Raymond is $210,000. 1. Goods shipped to Raymond f.o.b. destination on December 26, 2009, were received on January 2, 2010. The invoice cost of $30,000 is included in the preliminary inventory balance. 2. At year-end, Raymond held $14,000 of merchandise on consignment “from” the Harrison Company. This merchandise is included in the preliminary inventory balance. 3. On December 29, merchandise costing $6,000 was shipped to a customer f.o.b. shipping point and arrived at the customer's location on January 3, 2010. The merchandise is not included in the preliminary inventory balance. 4. At year-end, Raymond had merchandise costing $15,000 on consignment “with” the Joclyn Corporation. The merchandise is not included in the preliminary inventory balance. Required: Determine the correct inventory amount to be reported in Raymond's 2009 balance sheet. Stored in

5. Answer a) Invoice cost of $30,000 should not be recognized in preliminary inventory balance, because the goods is not accepted by Raymond yet. (Due to HKAS 18, the significant risks and rewards of the goods were not transferred to Raymond from the suppliers. The goods is still owned by the supplier). 30,000 should be recognized, because Raymond took title and accepted billing. And it is probably the goods will be accepted by Raymond. (Recognized already) b) $14,000 of merchandise on consignment should be included in the cost of inventory, because it is necessary for the cost of purchasing the inventory. (Recognized already) c) $6,000 of merchandise costing was shipped to a customer should not be included in the cost of inventory (because this transportation cost is spent for carrying for customer, it should be recognized as an expense (carrying outward), not for cost of inventory. d) $15,000 on consignment with the Joclyn Corporation is an error should be recognized as cost of inventory because it is an unavoidable cost for purchase the merchandise at the (Dr) opening inventory $15,000 in income statement, not the balance sheet. And Cr Retained Earning $15,000. include Answer:$210,000+$15,000-$30,000-$14,000 = $181,000

6. Inventory amount to be reported in Raymond's 2009 balance sheet. ● The scenario (1a): the Inventory amount in 2009 = $210,000 - $30,000(1a) = $180,000 ● The scenario (1b): the Inventory amount in 2009 = $210,000 = $210,000 Answer:$210,000+(4.)$15,000-(1.)$30,000-(2.)$14,000 = $181,000

7. E8-11: Physical quantities and costs included in inventory Phoenix inventory (physical count) at December 31. Please help in deciding if items below should be included in inventory count or not. 1. Merchandise held on consignment “for” Trout Creek Clothing. 2. Goods shipped f.o.b. destination on December 28 that arrived at the customer's location on January 4. 3. Goods purchased from a vendor shipped f.o.b. shipping point on December 26 that arrived on January 3. 4. Goods shipped f.o.b. shipping point on December 28 that arrived at the customer's location on January 5. 5. Phoenix had merchandise on consignment “at” Lisa's Markets, Inc. 6. Goods purchased from a vendor shipped f.o.b. destination on December 27 that arrived on January 3. 7.Goods sold to a customer sitting on the loading dock in December 31 waiting to be picked up by the customer. 8.Freight charges on goods purchased in 3.(carried inwards) 9.Freight charges on goods sold in 2 and 4..(carried outwards)

8. 1. Goods held on consignment are included in the inventory of consignor 貨主 until sold by the consignee 收件人. 2. Inventory shipped f.o.b. (free on board) destination is included in the purchaser’s inventory only after it reach the purchaser destination. 3. Inventory shipped f.o.b. point is included in the purchaser’s inventory as soon as the merchandise is shipped. 4. Inventory shipped f.o.b. point is included in the purchaser’s inventory as soon as the merchandise is shipped. 5.Goods held on consignment are included in the inventory of consignor until sold by the consignee. 6. Inventory shipping f.o.b. destination is included in the purchaser’s inventory only after it reach the purchaser destination. 7. 8. 9. You just write the concept as your answer but you can not apply it to case study. Exclude Include Exclude Include Exclude Answer:

9. Cost formula: First in, First out Recognize or not inventory: eg.FOB Physical court Lower of cost and NRV

10. Example : Inventory valuation (2) Cost Selling Price Costs to sell Product A460.5 Product B10111.5 Product C8122 Product D14163 Required Determine the amount at which inventory should be valued for Product A, Product B, Product C and Product D

11. Example : Inventory valuation (2): Answer Product A4 Product B9.5 Product C8 Product D13

12. Exam Practice: Lotto After its end of year physical inventory count and valuation, the accounts Staff of Lotto have reached a valuation of $153,699 at cost for total Inventories held at the year end. However, on checking the figure, bookkeepers has come across the following additional facts. (b) The count excludes 300 units of item 730052 which were sold to customer SC on a sales or return basis, at the price of $8 each. The original cost of the unit was $5 each.SC has not yet indicated to Lotto whether these goods have Been accepted or whether they will eventually be returned. (c) The count include 648 unit of item 702422. These cost $7.3 each originally but because of dumping of the market by overseas suppliers, a price war has flared up and the unit cost price of the item has fallen to $6.5. The price is expected to be temporary, lasting less than a year or so, although some observers of the market predict that the change might be permanent. Lotto has already decided that if the price reduction last longer that 6 months, it will Reduce its sales price of the item from $10.9 to about $10. (a)The count included the damaged goods which originally cost $2,885.These could be repaired at a cost of $921 and sold for $3,600

13. Exam Practice: Lotto Calculate the closing inventory figure for the inclusion in the annual account of Lotto. Explain the treatment of each item.

14. Exam Practice:Answer Lotto (a) Cr. inventories Dr. Cost of sales 206 2885- (3,600-921)= 206 (b) Dr. Inventories 300*5 Cr. Cost of sales 300*5 Dr. Sales 300*8 Cr. Accounts receivable/ received in advanced 300*8 Sale or return basis, also known as consignment sale, is an arrangement in which a seller provides goods to a reseller or dealer who pays for the goods only when they are resold. (c) No action.

15. Exam Practice:Answer Lotto

16. USB- class (BPP) ● 1. Opening inventory was valued at 1,600,000. While doing the inventory count, error in the previous year’s inventory count was discovered. ● The inventory bought forward at the beginning of the year should have been $2.2m, not $2.4m as in trial balance.

17. USB- class (BPP-answer) ● Cr. Inventories 2.4m Dr. Cost of sales 2.4m ● Dr. Inventories 2.2m Cr. Cost of sales 2.2m ● Cr. Inventories Dr. Retained Earning 1.6m