Question 3 (20 marks)

FBE Limited (FBE) was newly established in 2020. During the year ended 31 December 2020, FBE purchased the following items for resale. These items are the same (cannot be differentiated individually) and will be sold in the same geographical area.

Purchase date March 2020 June 2020

Number of items 30

25

Cost price per item $16.5

$19.5

30 items were left unsold on 31 December 2020 after a periodic count. At that date, FBE could resell each item at $18.0. FBE determines cost of inventory under first-in, first-out method using periodic inventory system.

Required:

(a) Define what is net realizable value of inventory. Specify the accounting standard for the definition. [5 marks]

(b) Determine the amount at which inventory should be measured. [7 marks]

(c) Prepare any necessary journal entry in respect of the above measurement. If no entry is required, please write No entry is required. [3 marks]

(d) On 2 January 2021, FBE purchased another 50 items at a unit price of $20.0 with a credit term of 3/10, n/60. FBE settled the invoice on 12 January 2021. Prepare all necessary journal entries with regard to this purchase. [5 marks]

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