Thomas Brown and Partners, a business of practising accountants, have several clients who are retail distributors of the Allgush Paint Spray guns. The current price list of Gushing Sprayers Limited, manufacturers, quotes the following wholesale prices for the Allgush Paint Spray guns:

The current normal retail price of the Allgush Paint Spray gun is £750. Thomas Brown and Partners are currently advising some of their clients concerning the valuation of stock in trade of Allgush Paint Spray guns. 1 Charles Gray – Grade B distributor On 30 April 2012, 15 Allgush Paint Spray guns were in inventory, including one gun which was slightly damaged and expected to sell at half the normal retail price. Charles Gray considers that this gun should remain in inventory at cost price until it is sold. K. Peacock, a customer of Charles Gray, was expected to purchase a spray gun on 30 April 2012, but no agreement was reached owing to the customer being involved in a road accident and expected to remain in hospital until late May 2012. Charles Gray argues that he is entitled to regard this as a sale during the year ended 30 April 2012. 2 Jean Kim – Grade C distributor On 31 May 2012, 22 Allgush Paint Spray guns were in inventory. Unfortunately Jean Kim’s business is suffering a serious cash flow crisis. It is very doubtful that the business will survive and therefore a public auction of the inventory-in-trade is likely. Reliable sources suggest that the spray guns may be auctioned for £510 each; auction fees and expenses are expected to total £300. Jean Kim has requested advice as to the basis upon which her inventory should be valued at 31 May 2012.

3 Peter Fox – Grade A distributor Peter Fox now considers that inventory valuations should be related to selling prices because of the growing uncertainties of the market for spray guns. Alternatively, Peter Fox has suggested that he uses the cost prices applicable to Grade C distributors as the basis for inventory valuations – ‘after all this will establish consistency with Grade C distributors’. Required: A brief report to each of Charles Gray, Jean Kim and Peter Fox concerning the valuation of their inventories-in-trade. Note: Answers should include references to appropriate accounting concepts.

Transcribed Image Text:

Grade A distributors Grade B distributors Grade C distributors 500 each 560 each 600 each