The main activity of J&T Ltd is to buy old vehicles which are sold after converting them into a saleable condition. At 29 February 2020 (the end of the company’s financial year) J&T Ltd had the following vehicles that were at various stages in the process of being converted to be ready for sale.

Notes:

1. Expected selling expenses for each vehicle are 6% of the expected selling price.

2. A quarter of the conversion costs relate to materials. But 20% of the cost of the materials used in the conversions is considered to be abnormal wastage, due to a poor quality type of material that has been used.

In an attempt to reduce the abnormal wastage of materials, material P has been used by the company since 5 January 2020, when 25 kilos were purchased for a total cost of £550. Subsequent purchases and usage of this material were as follows:

To ensure that the correct valuation of the company’s inventories is reflected in the final accounts, the company follows the guidance provided in IAS2 Inventories.

Required:

(a) Compute, in accordance with IAS2 Inventories, the value at which the inventory of vehicles as at 29 February 2020 should be shown in the final accounts of J&T Ltd.

(b) Determine the total cost of the abnormal wastage of materials that has been incurred on the conversion of the four vehicles.

(c) Calculate the total cost of material P that has been used and the cost of the inventory of this material as at 29 February 2020, using each of the following cost formulas:

(i) First-in, first-out (FIFO) 

(ii) Weighted average cost (AVCO).

Transcribed Image Text:

Vehicle WAYN X Purchase price £ 9,470 12,830 3,550 7,680 Costs incurred on bringing to present location £ 1,080 940 750 460 Conversion costs incurred to date £ 880 1,540 1,260 Expected further costs before sale £ 150 600 2,200 Expected selling price £ 14,000 19,300 6,000 11,800