FINANCIAL REPORTING ANALYSIS

Question 3

1. Water Works Limited is a construction company. During their most recent stocktaking exercise, the following inventory items were identified:

Quantity		Unit Cost		Selling Price/unit		Selling Cost/unit
Material A	3,000		$10		$8		$2
Material B	3,500		$14		$18		$3
Material C	3,900		$27		$28		$5
Material D	1,500		$15		$19		$4

1. i. Describe what is inventory as under IAS 2?

1. ii. What is the amount at which inventory should be stated in the statement of financial position?

1. Water Works Ltd. purchases items from various overseas suppliers. During their most recent trading year-end, the following costs were incurred.

Cost of purchases (based on vendors invoices) 600,000

Trade discounts on purchases 90,000

Import duties 13,500

Freight and insurance on purchases 26,500

Other handling costs relating to imports 12,150

Salaries of accounting department 95,000

Brokerage commission payable to agents for arranging imports 15,000

Sales commission payable to sales agents 14,100

Cost of security for warehouse 43,000

i. In keeping with IAS 2, determine the items that can be classified as inventory and calculate total cost of inventory.

ii. For any items that are not inventory, how should these be recorded in the financial

statements?