Question

The inventory control account balance of St George Fashions at 30 June 2023 was $110,510 using the perpetual method. A physical count conducted on that day found inventories on hand worth $110,100. Net realizable value for each inventory item held for sale exceeded cost. An investigation of the discrepancy revealed the following: - Goods worth $3,300 held on consignment for Rockhampton Accessories had been included in the physical count. - Goods costing $600 were purchased on credit from Springbrook Ltd on 27 June 2023 on FOB shipping terms. The goods were shipped on 28 June 2023 but, as they had not arrived by 30 June 2023, were not included in the physical count. The purchase invoice was received and processed on 30 June 2023. - Goods costing $1,200 were sold on credit to Noosa Pty Ltd for $1,950 on 28 June 2023 on FOB destination terms. The goods were still in transit on 30 June 2023. The sales invoice was raised and processed on 29 June 2023. - Goods costing $1,365 were purchased on credit (FOB destination) from Launceston Handbags on 28 June 2023. The goods were received on 29 June 2023 and included in the physical count. The purchase invoice was received on 2 July 2023. - On 30 June 2023, St George Fashions sold goods costing $3,150 on credit (FOB shipping) terms to Kurnell's Boutique for $4,800. The goods were dispatched from the warehouse on 30 June 2023 but the sales invoice had not been raised at that date. - Damaged inventories valued at $1,325 were discovered during the physical count. These items were still recorded on 30 June 2023 but were omitted from the physical count records pending their write-off. Required: 1. Prepare any journal entries necessary on 30 June 2023 to correct any errors and to adjust inventories. 2. i) What does the term 'net realizable value' mean? (need at least 100 words) 2. ii) What sources of evidence could a company use to determine net realizable value? (need at least 200 words) 2. iii) What action should a company take at year-end if some of its inventory items have declined in value while other inventory items have increased in value? Why? (need at least 250 words)

The inventory control account balance of St George Fashions at 30 June 2023 was $110,510 using the perpetual method. A physical count conducted on that day found inventories on hand worth $110,100. Net realizable value for each inventory item held for sale exceeded cost. An investigation of the discrepancy revealed the following:

- Goods worth $3,300 held on consignment for Rockhampton Accessories had been included in the physical count.
- Goods costing $600 were purchased on credit from Springbrook Ltd on 27 June 2023 on FOB shipping terms. The goods were shipped on 28 June 2023 but, as they had not arrived by 30 June 2023, were not included in the physical count. The purchase invoice was received and processed on 30 June 2023.
- Goods costing $1,200 were sold on credit to Noosa Pty Ltd for $1,950 on 28 June 2023 on FOB destination terms. The goods were still in transit on 30 June 2023. The sales invoice was raised and processed on 29 June 2023.
- Goods costing $1,365 were purchased on credit (FOB destination) from Launceston Handbags on 28 June 2023. The goods were received on 29 June 2023 and included in the physical count. The purchase invoice was received on 2 July 2023.
- On 30 June 2023, St George Fashions sold goods costing $3,150 on credit (FOB shipping) terms to Kurnell's Boutique for $4,800. The goods were dispatched from the warehouse on 30 June 2023 but the sales invoice had not been raised at that date.
- Damaged inventories valued at $1,325 were discovered during the physical count. These items were still recorded on 30 June 2023 but were omitted from the physical count records pending their write-off.

Required:

1. Prepare any journal entries necessary on 30 June 2023 to correct any errors and to adjust inventories.

2. i) What does the term 'net realizable value' mean? (need at least 100 words)

2. ii) What sources of evidence could a company use to determine net realizable value? (need at least 200 words)

2. iii) What action should a company take at year-end if some of its inventory items have declined in value while other inventory items have increased in value? Why? (need at least 250 words)

Added by Whitney A.

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