Trend Style Limited (TS Ltd) started operations in 2012. They import raw material from the USA, process it and sell it in South Africa. One product is manufactured, namely Kanna.

During the year the company imported raw materials free on board (FOB) from the USA with the following details:

Invoice price	$720 000
Wharfage (paid for ship to be in harbour)	R30 200
Freight	R22 000
Custom duties	R180 000
Raw materials imported	60 000kg

The exchange rate on 1 February 2012 was $1= R8.34 when the raw materials were shipped from the USA. The exchange rate was $1 = R8.25 when the raw materials was cleared by customs officials, and $1 = R8.29 on 1 May 2012 when it arrived on the factory premises.

After TS Ltd ordered the raw material from the USA they discovered a supplier in South Africa who can deliver the same quality raw material compared to what was ordered from the USA. They ordered 40 000kg of raw material form the supplier in South Africa with the following details:

Invoice costs	R5 010 260
Expected settlement discount	R250 260
Transport cost to deliver raw materials	R80 000
Date delivered to TS Ltds factory	1 May 2012

The imported raw materials and locally sourced raw materials are mixed and then issued to the plant that manufactures the product.

The following information is available for the period 1 May 2012 to 31 December 2012:

Raw materials issued for production	30 000 kg
Consumables used in the production process	R200 000
Direct labour (R8 per hour)
Productive hours	152 000
Idle hours	24 000
Salaries of management of the manufacturing process	R800 000
Repairs and maintenance (100% fixed)	R600 000
Water and electricity	R120 000
Depreciation (straight line method) - plant	R 30 000
Storage costs of finished goods	R 30 000

Additional information for the period 1 May 2012 to 31 December 2012:

1. Normal capacity (productive and idle time) is 22 000 hours per month.
2. The employees in the plant went on strike during August 2012 in order to negotiate for higher wages. The plant lost 6 000 hours as a result of the strike. These idle hours are included in total idle hours of 24 000 hours. The remainder of the idle hours is normal.
3. One unit of the finished product of Kanna uses 1kg of raw material.
4. Normal raw material wastage is 10%, which takes place at the beginning of the production process.
5. There are no work-in-progress inventories at year end, and no other raw materials were purchased during the year. Raw materials are valued using the weighted average cost method.
6. As a result of the inventory take at year end 31 December, management uncovered that 5 000 kg of raw material was stolen.
7. Finished products manufactured during the year were 27 000 units. Twenty five percent of the finished products were still on hand on 31 December 2012. Finished goods are valued using the first-in-first out method.
8. The replacement cost of raw materials was higher on 31 December 2012 than in May 2012.
9. The selling prices of finished products were R250.80 per unit (including VAT) on 31 December 2012.
10. The water and electricity bill is directly related to the volume of production.
11. Delivery cost per product amounts to R2, while sales commission amounts to 5% of the selling price excluding VAT.
12. TS Ltd is registered for VAT purposes. Amounts are excluding VAT unless otherwise indicated. The VAT rate is 14%.

Required:

1. Calculate the amount at which inventory should be disclosed in the Statement of Financial Position as at 31 December 2012. (18)
2. Prepare the following note to the financial statements of Trend Style Ltd for the period ended 31 December 2012 in accordance with IFRS (comparatives not required) :
3. Inventory note underlying the inventory amount as disclosed in the Statement of Financial Position. (2)