The directors of Aluki, a fashion wholesaler, are reviewing the company's draftfinancial statements for the year ended 30 September 2003, which show a profit of $900,000 before tax. The following matter require consideration:

The closing inventory includes:

1. 3,000 skirts at cost $40,000. Since the balance sheet date they have all been
2. sold for $65,000, with selling expenses of $3,000.
3. 2,000 jackets at cost $60,000. Since the balance sheet date half the jackets
4. have been sold for $25,000 (selling expenses $1,800) and the remainder is expected to sell for $20,000 with selling expenses of $2,000.

Required:

Explain to the directors how the matter should be treated in the financial statements for the year ended 30 September 2003, stating the relevant accounting standard.