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Exam 11: Inventories

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Question 21

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At the end of the 20X7 reporting period, Justice Supply Entity has the original cost of legal paper recorded as inventory at $69,000. However, its net realizable value is $65,000. What should Justice Supply Entity do?

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Question 22

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After a write-down of inventories due to sluggish demand, Portia's Premium Pastas (PPP) suddenly and unexpectedly experienced a resurge in demand for its premium pastas. PPP is barely able to produce enough inventory to meet demand. Under IFRS, a reversal of the previous write-down would likely be appropriate with an explanation of the circumstances surrounding the reversal.

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Question 23

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Johnstone Timber regularly sells lumber mills and land that it holds when they are depreciated or depleted. These lumber mills and tracts of land are considered inventory.

On December 31, 20X7, Varsity Motors (VM) had an inventory of five different types of oil well parts. Due to economic downturn and declining demand for oil, the market prices for oil well parts have declined. The year-end unit costs (determined by applying the weighted-average cost formula), estimated unit selling prices, estimated costs to sell, and net realizable values for each of the items are presented below. The determination of the amount of inventories to be reported in the statement of financial position is presented below. VM tests its inventory for impairment on an item-by-item basis. $\begin{array} { | l | c | c | c | l | l | } \hline \text { Item } & \begin{array} { l } \text { Original } \\\text { Cost }\end{array} & \begin{array} { l } \text { Selling } \\\text { Price }\end{array} & \begin{array} { l } \text { Estimated } \\\text { Cost to sell }\end{array} & \text { NRV } & \text { LCNRV } \\\hline \mathrm { A } & \$ 6,000 & \$ 5,100 & \$ 500 & & \\\hline \mathrm { B } & 4,500 & 4,300 & 100 & & \\\hline \mathrm { C } & 3,900 & 4,000 & 50 & & \\\hline \mathrm { D } & 1,800 & 1,600 & 75 & & \\\hline \text { E } & 1,400 & 1,450 & 150 & & \\\hline \text { Total } & \$ 17,600 & & & & \\\hline\end{array}$ -If instead of testing its inventory for impairment on an item-by-item basis, VM decided that this inventory meets the specific criteria for impairment testing as a group, What journal entry is made on December 31, 20X7 to record the adjustment?

Dovetail Cabinetry is a custom cabinet and furniture shop in Finland. Dovetail uses a periodic inventory system. This year, Dovetail purchased €15 million in furniture which it officially received on February 13 and €20 million in cabinetry which it officially received on March 3. It's beginning inventory was €56 million and it has sold €21 million in cabinets and furniture through March 31. How much inventory does Dovetail have recorded on its books as of March 31?