You are the accounting consultant to a public holding company which has four trading subsidiaries: Screws Limited, Brackets Limited, Frames Limited and Concrete Blocks Limited. All the subsidiaries tend to be of roughly equal value. The accounts of the company are made up annually to 31 December.

Two weeks before the year-end the Group Chief Accountant Bey the following matters to your attention:

(a)

(b)

The Group Chief Accountant has suggested to the management of Screws Limited, a manufacturing company, that their finished goods inventory must be accurately costed this year. However, the management of Screws Limited insist that their usual basis of selling price less 20% is convenient and also consistent since the same per-s cartage is used each year.

Brackets Limited, which manufactures a range of brass sockets, is currently facing a price war with its main competitor. It is anticipated that the company’s trading results for the last quarter of the year will be as follows:

On 31 December, inventories consist only of 200 tones of completed brass sockets.
The last consignment was purchased on 1 December at €500 per tone and the published market price on 31 December is expected to be €520 per tonne. The Group Chief Accountant is uncertain how the brass inventory should be valued. The note on the group accounts will read: “Inventories are valued at cost (in the case of finished goods, factory cost) or net realizable value if lower’.

(c) Frames Limited imported a shipment of windows from America on 15th November and the cost at the rate of exchange on that date was €100,000. The goods were not paid for until 10th December and the payment amounted to €120,000 due to an appreciation in the value of the US dollar during the three-week period.
It is thought that only 5% of the consignment will have been sold by 31 December and the management of Frames Limited wish to value the windows on that date at €114,000.

(d) Concrete Blocks Limited have hitherto included fixed costs and variable costs (in particular fixed factory overheads) when valuing their inventory of finished goods. They now wish to move over to a variable-cost-only basis of valuation which they claim will give a truer picture of their performance.
Requirement Prepare a memorandum for the attention of the Group Chief Accountant that addresses each of the points above.

Transcribed Image Text:

Units (Tonnes) '000 Sales 700 300 Brass consumed 700 (200) Conversion costs (120) Selling costs (30) Loss (50)