EXAMPLE INVENTORY LOSSES

Mr Shoeboo is the owner of an enterprise selling shoes and boots and he

approaches you regarding a claim for inventory destroyed by fire at his shop on
20 September 2019. He always marks the inventory to realise a profit of 40% on
selling prices before Value Added Tax (VAT). The enterprise is registered for VAT
and VAT is charged at a rate of 15%.
The following information is available:
R
Inventory 1/10/2018 1 050 000
Purchases 1/10/2018 to 20/09/2019 according to invoices from suppliers 24 725 000
Sales 1/10/2018 to 20/09/2019 according to duplicate invoices to 34 500 000
customers
Inventory not destroyed by the fire at marked prices 1 820 834

During January 2019 a sale was held where all inventory were sold by marking
down the marked prices by 25%. The proceeds of sales during the ‘sale’ week was
R862 500.
No adjustment has been made in the records in respect of the following:
a) On the night of 17 February 2019, thieves broke into the store and stole
shoes with marked prices of R115 000. Mr Shoeboo is not insured against
losses of this nature.
b) An assistant, since dismissed, is known to have stolen R5 750 from the cash
takings during May 2019. This money is irrecoverable.
c) An invoice for R8 050, in respect of goods purchased for resale from Suppliers
Ltd. On 18 December 2018, was never recorded in the books.

REQUIRED EXAMPLE

Calculate the inventory loss as a result of the fire on 20 September 2019.

Your answer should comply with IFRSs. Assume that all items and amounts are material
except where the information clearly indicates otherwise. Round off to the nearest Rand.