BKAR2023 FINANCIAL ACCOUNTING AND REPORTING II (A202)

MINI CASE:
INVENTORIES

DUE DATE: 6/4/2021

Guidelines for submission:

1) Please answer all questions.

2) Please write your name, matric number, group on the header and page number on the
bottom of your answer document.

3) The mini case is an individual task, however discussion is allowed, but copying other
student’s answer is forbidden.

4) Your answer should be handwritten and subsequently scanned with a scanner or

mobile scanner apps in a combined PDF file. The scanned document must be clear,
easily readable and complete. Photo is not allowed.

5) Submit your scanned answer via Online Learning portal → within

the allotted time and period, before 12.00 mid night, XXXXXX (MYT). Only one
submission will be accepted.
QUESTION 1

KitchenStore Bhd (KSB) is a kitchenware company operating in Kedah. The company is in the
process of preparing its annual financial statements for the year ended 31 December 2019. KSB
applies the Loss Method and the Allowance to Reduce Inventory to Net Realisable Value (NRV)
Account to record the write down of the inventory. The relevant inventory costs and market data
on 31 December 2019 is summarised in the schedule below:

Estimated Completion and

Cost per
Item Quantity Selling Price Selling Cost per
Unit (RM)
per unit (RM) unit (RM)
Plate 2,000 6.70 4.00 1.20
Bowl 1,500 8.30 5.20 0.70
Skille
t 800 70.00 86.00 11.00

REQUIRED:

(a) Calculate the LCNRV using the “individual-item” approach and determine the final
amount of inventory. Prepare the relevant journal entry required as at 31 December 2019.

(b) Referring to the (a) question, determine the amount of gain or loss that would be recorded
by KSB if there is a credit balance of RM15,150 in the Allowance to Reduce Inventory to
NRV Account. Show the related journal entry.

(c) Explain how the estimations of the Net Realization Value (NRV) are made according to
MFRS 102 Inventories, Para 30.
QUESTION 2

Masco Bhd manufactures and sells facial masks to hospitals and pharmacies. The company is in
the process of finalising its financial statements for the year ended 31 December 2019. On the
financial year end, the credit balance in the Allowance to Reduce Inventory to Net Realisable
Value (NRV) was RM85,000 and the company inventory information during the financial year is
as follows:

1 ply mask 3 ply mask 4 ply mask N95 mask

Cost/Unit (RM) 0.15 0.20 0.50 7
Estimated selling price/Unit 0.20 1.00 1.80 11
(RM)
Estimated cost to make the 0.10 0.20 0.45 4
sales/Unit (RM)
Ending quantity 1,000,000 1,000,000 250,000 80,000

Masco Bhd applies the loss method to record for the write down of the inventory to NRV.

REQUIRED:
(Round your answer to the whole number)

(a) Determine the LCNRV and the exact balance in the Allowance to Reduce Inventory to
NRV at 31 December 2019.

(b) Prepare the relevant journal entry as at 31 December 2019.

(c) Prepare a partial statement of financial position as at 31 December 2019 for Masco Bhd.

(d) Assume the credit balance in the Allowance to Reduce Inventory to Net Realisable Value
(NRV) is RM85,000 and the computed recovery of inventory loss is RM95,000. Briefly
explain the accounting treatment for the transaction.

QUESTION 3
Décor Home Bhd installs replacement siding, windows and louvered glass doors for
condominium complexes. The company is in the process of preparing its annual financial
statements for the fiscal year ended 31 March 2019. On that date, the balance in Décor Home
Bhd Inventory account was RM408,000 and Allowance to Reduce Inventory to Net Realisable
Value (NRV) had a credit balance of RM27,500. The relevant inventory costs and market data
on 31 March 2019 is summarised in the schedule below.

Inventory Cost (RM) Sales Price (RM) Net Realisable

Value (RM)
Aluminium siding 70,000 64,000 56,000
Cedar siding 86,000 94,000 84,800
Louvered glass doors 112,000 186,400 168,300
Thermal windows 140,000 154,800 140,000
Total 408,000 499,200 449,100

Décor Home Bhd applies the Loss Method and use an Allowance Account to record for the write
down of the inventory to net realisable value.

REQUIRED:

(a) Assuming that Décor Home Bhd applies the LCNRV rule to item by item. Determine the
proper balance in Allowance to Reduce of Inventory to Net Realisable Value Account on
31 March 2019.

(b) For the financial year end 31 March 2019, determine the amount of the gain or loss that
would be recorded due to the change in Allowance to Reduce Inventory at Net Realisable
Value. Prepare the related journal entry.

(c) Identify TWO (2) differences between consignor and consignee in a consignment basis.