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A231 MC 2 Inventories - Questions
A231 MC 2 Inventories - Questions
A231 MC 2 Inventories - Questions
MINI CASE 2:
INVENTORIES
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.
1
QUESTION 1
Mikari Bhd was established since year 1997, produces lines of stainless-steel kitchen faucets.
The company is in the process of preparing its financial statements for the year ended 31
December 2022. In line with MFRS 102 Inventories, Mikari Bhd values its inventory at the
Lower of Cost or Net Realisable Value (LCNRV). It applies the loss method and allowance
account to record for the write down of the inventory to NRV. The company’s inventory
information during the financial year is as follows:
Item Quantity Cost/ Unit Estimated selling Completion and
(RM) price/ Unit (RM) selling cost /Unit (RM)
Single - Pillar 5,400 12.50 20.70 1.20
Single - Wall 3,800 18.80 19.60 1.45
Double - Pillar 6,100 39.20 41.70 2.65
Double - Wall 2,900 40.90 44.20 3.10
The company had a credit balance on Allowance to Reduce Inventory to NRV account amounted
to RM3,000 at the beginning of the year.
REQUIRED:
(Show all workings)
(a) Calculate the LCNRV using the “individual-item” approach to determine the inventory
valuation as at 31 December 2022.
(b) Determine the amount of gain or loss that would be recorded due to the change in the
Allowance to Reduce Inventory to NRV Account as calculated in (a) above. Show the
related journal entry.
(c) “The loss method is preferred in recording the net realizable value of the inventories as
compared to debiting the Cost of Goods Sold account.” Briefly explain the statement.
2
QUESTION 2
Pelastik Bhd is a company that manufactures and distributes plastics cabinet/storage across
Malaysia. The company follows the practice of valuing inventory at the Lower of Cost or Net
Realizable Value (LCNRV). The following information is available from the company’s
inventory records as of 31 December 2022.
REQUIRED:
(b) Prepare the journal entries as at 31 December 2022 assuming that a loss method and the
Allowance to Reduce Inventory to NRV Account is used to record the write down of the
inventory.
(c) Assume that as at 31 December 2022, the account of Allowance to Reduce Inventory to
NRV had a credit balance of RM15,000. Determine the amount of the gain or loss that
would be recorded due to the change in the Allowance to Reduce Inventory to NRV
Account as in (b). Show the related journal entries.
3
QUESTION 3
Rightover Bhd began its operations in mids 2021 and determined its ending inventories at cost
and NRV on 30 June 2022 and 2023 as follows:
REQUIRED:
a) Prepare the journal entries required on 30 June 2022 and 30 June 2023, assuming inventory
is recorded at LCNRV and perpetual inventory system using the cost-of-goods-sold method.
b) Prepare the journal entries required at 30 June 2022 and 30 June 2023, assuming inventory is
recorded at cost with a perpetual inventory system. Use the loss method and allowance to
record any LCNRV.
c) Which of the two methods above provide a higher net income in each year?