(1) Xantia Company 31 December 2018 inventory includes three items for which the following details are available: Units Raw material cost (per unit) BHD Product X 200 Product Y 100 Product Z 55 200 260 600 Attributable production overheads (per unit) BHD 300 210 100 Expected Attributable selling selling price (per costs (per unit) BHD unit) BHD 600 500 590 20 16 10 Xantia Company adopts a periodic inventory system and uses FIFO as a cost flow assumption. Purchase prices have been fluctuating for the last few years. Xantia is facing some difficulties with inventory valuation (i.e. accounting for inventory). The company is rethinking the use of FIFO vs weighted average as cost flow assumptions & inventory valuation as per IAS 2.

(2) Naser Company is engaged in a legal dispute with one of its major customers. The customer has commenced legal action against the company claiming substantial damages for defective goods. The company lawyers have advised that it is possible that Naser Company will be liable. The lawyers have quantified the potential liabilities as follows: Settlement of claim if successful Legal costs to be incurred by the company regardless of outcome Legal costs to be incurred by the company if claim is successful BHD'000 500 2 110 612 Naser Company expects a court ruling after the year end, but it might be possible to know the outcome before issuance of the financial statements. Naser Company is uncertain about the accounting treatment including disclosure requirements, if any.

Required: Advise the companies on the above inquiries, illustrating your advice, where appropriate, with relevant numerical details.

QUESTION 4 (30 Marks) The scenarios below are related to three independent companies. You have been approached to provide advice on the accounting treatment on the following: (1) Xantia Company 31 December 2018 inventory includes three items for which the following details are available: Units Raw material cost (per unit) BHD Attributable production overheads (per unit) BHD 300 210 100 Expected Attributable selling selling price (per costs (per unit) BHD unit) BHD Product X Product Y Product Z 200 100 55 200 260 600 600 500 590 20 16 10 Xantia Company adopts a periodic inventory system and uses FIFO as a cost flow assumption. Purchase prices have been fluctuating for the last few years. Xantia is facing some difficulties with inventory valuation (i.e. accounting for inventory). The company is rethinking the use of FIFO vs weighted average as cost flow assumptions & inventory valuation as per IAS 2. (2) ) Naser Company is engaged in a legal dispute with one of its major customers. The customer has commenced legal action against the company claiming substantial damages for defective goods. The company lawyers have advised that it is possible that Naser Company will be liable. The lawyers have quantified the potential liabilities as follows: BHD'000 Settlement of claim if successful 500 Legal costs to be incurred by the company regardless of 2 outcome Legal costs to be incurred by the company if claim is 110 successful 612 Naser Company expects a court ruling after the year end, but it might be possible to know the outcome before issuance of the financial statements. Naser Company is uncertain about the accounting treatment including disclosure requirements, if any. QUESTION 4 (30 Marks) The scenarios below are related to three independent companies. You have been approached to provide advice on the accounting treatment on the following: (1) Xantia Company 31 December 2018 inventory includes three items for which the following details are available: Units Raw material cost (per unit) BHD Attributable production overheads (per unit) BHD 300 210 100 Expected Attributable selling selling price (per costs (per unit) BHD unit) BHD Product X Product Y Product Z 200 100 55 200 260 600 600 500 590 20 16 10 Xantia Company adopts a periodic inventory system and uses FIFO as a cost flow assumption. Purchase prices have been fluctuating for the last few years. Xantia is facing some difficulties with inventory valuation (i.e. accounting for inventory). The company is rethinking the use of FIFO vs weighted average as cost flow assumptions & inventory valuation as per IAS 2. (2) ) Naser Company is engaged in a legal dispute with one of its major customers. The customer has commenced legal action against the company claiming substantial damages for defective goods. The company lawyers have advised that it is possible that Naser Company will be liable. The lawyers have quantified the potential liabilities as follows: BHD'000 Settlement of claim if successful 500 Legal costs to be incurred by the company regardless of 2 outcome Legal costs to be incurred by the company if claim is 110 successful 612 Naser Company expects a court ruling after the year end, but it might be possible to know the outcome before issuance of the financial statements. Naser Company is uncertain about the accounting treatment including disclosure requirements, if any