Financial Accounting and Reporting III

Chapter Inventory

Questions

a. What are the criteria to regonize an asset as inventory?

b. How many types of inventories available in industry? Describe briefly about these
inventories.

c. Stabilo Bhd purchased some merchandise from oversea. In addition to the purchase
price of the merchandise, it incurred some additional costs. The breakdown of the costs
is as follows:
RM
Purchase costs 220,000
Shipping costs 840
Import duties 4,800
Transportation cost to the warehouse 600
Transportation to the showroom from 400
warehouse
Return merchandise due to damage condition 1,500
(return after 1 week received the
merchandise)

Term of purchase: Payment due in 60 days or 3% discount

of the purchase price if the payment made within 3 weeks.

If the company took advantage of the discount, can you help the company to determine
the value of the inventory?

d. Saya Bhd is a company specializes in marketing quality used cars in KL and SA. Now
it has trouble selling some of the cars. As a result the company transported some of
its inventory from KL Showroom 1 to KL Showroom 2.
Based on your understanding, which of the following expenses should be recorded as
inventory?

1 Advertising expenses
2 Transportation costs from one showroom to the next
3 Rent of the showroom
4 Cost of safety materials used during transportation to
showroom
e. Kami Bhd is involved in the rental and retailing of motor vehicles. On 1 January 2013,
the company acquired 20 units of motor vehicles. 5 units were meant to be rented out
to customers, while the remaining units were meant for sale. The vehicles to be rented
out were estimated to generate income for a period of 10 years.

i) Are the motor vehicles to be rented out to customers assets? Briefly state
reasons for your answer. (5 Marks)

ii) Are the motor vehicles to be rented out to customers items of inventory ?
Why? (4marks)

iii) Are the motor vehicles to be sold items of inventory? Why? (4marks)

f. Which industry used LIFO as their inventory method? Give your opinion.