Practice Question

FMMC hospital is preparing its financial statements for the year$-$ended $31$ December $2022$ and needs calculate the total value of inventory as at the year$-$end. A count of all inventories gave a total value of N$38,700,000$

but the hospital's accountant was unsure of the treatment of the following:

a$)3,000$ vaccination kits donated to the hospital by an international aid charity shortly before the year$-$end have been included at a value of N$100,$ as the accountant felt that since the kits had not cost the hospital anything, this

nominal amount would be a reasonable basis to include them in the accounts. Upon checking the website of the company that makes the kits, it appears that their value is N$450$ each.

b$)$The valuation includes N$900,000$ of medicines which were found to be out of date during the inventory count. These medicines will need to be disposed of$.$ There will be no cost incurred during the disposal.

c$)$One of the hospital's medicines is produced in$-$house, and the $1,220$ bottles of this medicine held at the year$-$end have been included in the year$-$end valuation at N$650/$bottle$.$ This valuation has been calculated by the accountant as follows: $-$

$-$Raw materials per item N$300$

$-$Labour per item N$200$

$-$Pharmacy overhead per item N$150$

The hospital's management accounting department had calculated earlier in the year that the standard overhead to be attributed to each bottle produced should be N$80,$ but the accountant decided to increase this to N$150$ in the closing inventory valuation because fire damage in the pharmacy during the year had led to a short$-$term increase in overhead costs, and the accountant is keen that some of these costs are deferred until next year by increasing the inventory valuation.

d$)$The hospital has a large liquid oxygen storage tank which it uses to refill the portable oxygen tanks used in various patient treatments. The accountant remembers that the oxygen is usually valued on a weighted average cost basis but couldn't remember how to do the calculation so it is currently valued at nil. The accountant provides you with the following information: $-$

The prior year$-$end valuation was a total of $3,500$ kilograms $($kg$)$ at N$71/$kg$.$

$-$During the year, two deliveries were received from the liquid oxygen supplier.

$15,500$ kg were received on $1$ April at a cost of N$83$ per kg and a further $13,300$ kg were received on $1$ September at a price of N$87$ per kg$.$

$-$Oxygen was taken from the bulk tank on $3$ occasions during the year to refill all of the hospital's portable tanks.$$Dates and quantities were as follows:

$3$ April: $4,900$ kg

$12$ June: $6,300$ kg

$27$ September: $7,050$ kg

$-$As in previous years, the auditors have agreed that the oxygen held in portable tanks is not material so no valuation is needed.

Required Calculate the closing inventory valuation to be included in the hospital's statement of financial position as at $31$ December $2022.$