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Professional fileIAS 2L4 · Expert

Professional file: inventory closing of a manufacturer-distributor of apple products

22 documents16 tasks≈ 240 min
0 / 27 items completed
Standards
IAS 2 — Inventories
Assistance levelFree workspace · autonomous situation
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: withdrawn

Case brief

Situation

Pomarelle SA (a fictitious company) runs apple orchards, presses its own apples and apples bought from growers to make juice and compote, and distributes imported dried fruit (apricots, figs) to delicatessens. It reports at 31 December and applies IFRS. You are in charge of the inventory closing file at 31 December 20X6: classification of the items, cost of purchase and production cost, joint production, cost formulas, net realisable value test, write-downs and reversal, entries, impact, amount recognised as an expense, note, responses to the reviewer's notes and conclusion. Under the entity's policies (file data), the cost of dried fruit is assigned using first-in, first-out (FIFO) and that of juice and compote using the weighted average cost calculated over the year; a periodic inventory system is used, the cost of sales being determined at the reporting date; production costs are recorded by nature, materials consumed being released from inventories at their cost. The measurement of the harvest under IAS 41, the classification of the forward exchange contracts under IFRS 9, the accounting for the pressing line under IAS 16 and the treatment of events after the reporting period under IAS 10 are file data; tax is out of scope. The entries of the file are presented as not yet recorded (teaching assumption).

Your assignment

The file contains documents of varying nature and reliability, two of which have no bearing, proposals by management and departments to be assessed, a draft note to be corrected and two pieces of missing information, one of which is obtained during the engagement. Classify the items with regard to the scope of IAS 2, determine the cost of the apricot lot and the production cost of the campaign, allocate it between the products, apply the cost formulas, test net realisable value item by item, calculate the write-downs and the reversal, record the entries, measure their impact, determine the amount recognised as an expense and correct the note; document each judgement, respond to the reviewer's notes and conclude on the file.

You prepare a complete file: documents, work, entries and conclusion, then compare your work with the solution and the review points of the file.

Autonomous professional situation

As on a real engagement: no method, no checklist and no hints. You identify the issues yourself, organise the work and defend your conclusion.

  • Organise the work
  • Document each point
  • Argue the conclusion

Events

Chronology of the file

  1. March 10 20X6Date the lot was received · Dated fact of the file

    Document 4

  2. November 15 20X6Date the contract was signed · Dated fact of the file

    Document 13

  3. December 31 20X6Reporting date · Dated fact of the file

    Document 1

  4. January 18 20X7Date of the quotation · Dated fact of the file

    Document 14

  5. February 15 20X7Date of the announcement of the duty cut · Dated fact of the file

    Document 15

Documents

File documents

22 documents: open each one to read it.

Document 1Memo

Planning memo of the file

Planning memo of the inventory closing file of Pomarelle SA at 31 December 20X6. Items to be examined: orchards and harvest, forward exchange contracts, imported dried apricot lot, pressing campaign (juice, compote and pomace), stock cards, net realisable value test, components allocated to the new pressing line and note. Entity policies: first-in, first-out (FIFO) for dried fruit, weighted average cost calculated over the year (periodic average) for juice and compote; a periodic inventory system is used, the cost of sales being determined at the reporting date; production costs recorded by nature, materials consumed being released from inventories at their cost, the production cost then being capitalised in inventories at the reporting date. Pomarelle is not a commodity broker-trader and measures no inventories at net realisable value under industry practices.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Reporting dateDecember 31 20X6
Orchard harvest measured at the point of harvest under IAS 41€240,000.00
Notional amount of the forward exchange contracts€150,000.00
Date the lot was receivedMarch 10 20X6
Quantity received (kg)24,000 units
Gross purchase price€184,000.00
Trade discount€9,200.00
Import duties€11,040.00
Recoverable VAT paid on import€38,400.00
Transport and handling to the warehouse€6,160.00
Storage at a third-party warehouse pending sale€4,300.00
Sales agents commissions€2,900.00
Bank overdraft interest€7,500.00
Materials consumed (apples, jars, bottles and packaging)€720,000.00
Direct labour€210,000.00
Variable production overheads€90,000.00
Fixed production overheads€420,000.00
Apples pressed in 20X6 (tonnes)4,800 units
Costs of the cooling failure€18,000.00
Bottles of juice produced999,000 units
Jars of compote produced444,000 units
Normal pressing capacity (tonnes)6,000 units
Sales value of the juice produced€1,398,600.00
Sales value of the compote produced€932,400.00
Selling price of the pomace€30,000.00
Pomace transport borne by Pomarelle€6,000.00
Dried apricots in stock at the start of the year (kg)6,000 units
Unit cost of the opening apricots€7.50
Opening apricot inventories€45,000.00
Apricots sold in 20X6 (kg)21,000 units
Bottles of juice in stock at the start of the year333,000 units
Unit cost of the opening juice€0.88
Opening juice inventories€293,040.00
Bottles of juice sold in 20X61,120,000 units
Jars of compote sold in 20X6340,000 units
Delivery cost per jar (20X6 carrier rate)€0.05
General selling price of compote (per jar)€2.10
Costs to sell compote (per jar)€0.10
Mislabelled bottles12,000 units
Selling price of the relabelled bottles€0.85
Costs to sell the relabelled bottles (per bottle)€0.05
General selling price of juice (per bottle)€1.40
Costs to sell juice (per bottle)€0.06
Selling price of dried apricots (per kg)€9.50
Costs to sell dried apricots (per kg)€0.30
Date the contract was signedNovember 15 20X6
Jars of compote to be delivered30,000 units
Contract price per jar€1.10
Date of the quotationJanuary 18 20X7
Relabelling cost per bottle€0.15
Date of the announcement of the duty cutFebruary 15 20X7
Dried apricot price after the announcement (per kg)€7.20
Dried figs in stock (kg)4,000 units
Cost of the dried figs€40,000.00
Write-down of the figs at 31 December 20X5€12,000.00
Selling price of the figs (per kg)€12.00
Costs to sell the figs€1,500.00
Cost of the jars and packaging in stock€58,000.00
Replacement cost of the jars and packaging€49,000.00
Stainless steel components fitted on the new pressing line€26,000.00
Maintenance supplies bought in December 20X6€61,000.00
Carrying amount of inventories at the start of the year€416,040.00
Purchases of apples, packaging and supplies€549,000.00
Juice inventories pledged as security€150,000.00
Closing inventories per the draft€523,100.00
Amount recognised as an expense per the draft€1,527,940.00
Net reversal presented in the draft€5,460.00
Value of the orchard land€1,900,000.00
Annual insurance premium€27,000.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort22

  • Planning memo of the file

  • Memo from the orchard manager

  • Forward exchange contracts

  • Invoice for the dried apricot lot

  • Customs declaration and forwarder invoice

  • Costs proposed for capitalisation by the purchasing department

  • 20X6 pressing campaign table

  • Memo from the production director

  • Sales department memo on the campaign output

  • Stock cards and 20X6 sales register

  • Memo from the finance director: closing proposals

  • Selling price and cost data at 31 December 20X6

  • Distrimax firm sales contract

  • Quotation from the relabelling subcontractor

  • Post-closing memo from the purchasing department

  • Count of the dried figs and the packaging

  • Memo from the maintenance department

  • Inventory and 20X6 purchases trial balance

  • Bank credit facility agreement

  • Draft note on inventories

  • Valuation report on the orchard land

  • Factory insurance policy

Relevant to the treatment0

    No effect0

      Workspace

      Work programme

      Organise your work freely: deal with each point, then argue your conclusion.

      1. Task 1Analysis

        Analyse the file: which accounting issues arise, which documents are useful and which information is missing?

      2. Task 2Professional judgement

        Classify each item with regard to the scope of IAS 2 and determine the amount at which the harvest enters inventories.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Classify each item with regard to the scope of IAS 2 and determine the amount at which the harvest enters inventories.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Calculate the cost of purchase of the dried apricot lot and its unit cost.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the cost of purchase of the dried apricot lot and its unit cost.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Unit cost of the lot (per kg)

      4. Task 4Professional judgement

        Assess the proposals on the costs to be capitalised and the activity level of the campaign.

      5. Task 5Calculation

        Calculate the fixed overheads allocated, the unallocated overheads and the production cost of the campaign.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the fixed overheads allocated, the unallocated overheads and the production cost of the campaign.

        1. units
        2. €
        3. €
        4. €
        5. €

        Checks

        • 0 / 5 steps entered
        • Amounts readable

        Result: Costs of conversion capitalised

      6. Task 6Calculation

        Allocate the production cost between the juice, the compote and the pomace and calculate the unit costs.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Allocate the production cost between the juice, the compote and the pomace and calculate the unit costs.

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €

        Checks

        • 0 / 6 steps entered
        • Amounts readable

        Result: Unit cost of the compote produced

      7. Task 7Professional judgement

        Which cost formulas apply and how do you respond to the proposals of the finance director?

      8. Task 8Calculation

        Calculate the cost of sales and the closing inventories of the apricots, the juice and the compote.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the cost of sales and the closing inventories of the apricots, the juice and the compote.

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €
        7. €

        Checks

        • 0 / 7 steps entered
        • Amounts readable

        Result: Closing compote inventories at cost

      9. Task 9Professional judgement

        How do you organise the net realisable value test and which evidence do you use?

      10. Task 10Calculation

        Calculate the net realisable values and the write-downs item by item.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the net realisable values and the write-downs item by item.

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €
        7. €
        8. €

        Checks

        • 0 / 8 steps entered
        • Amounts readable

        Result: Write-downs of the period

      11. Task 11Calculation

        Calculate the reversal of the write-down of the figs and their new carrying amount.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Calculate the reversal of the write-down of the figs and their new carrying amount.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Carrying amount of the figs after the reversal

      12. Task 12Journal entries

        Record the entries of the file.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        4. Line 4

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Journal entry · Journal entries

        Entry 2 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        3. Line 3

        4. Line 4

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 3 · Journal entry · Journal entries

        Entry 3 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 4 · Journal entry · Journal entries

        Entry 4 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 5 · Journal entry · Journal entries

        Entry 5 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 6 · Journal entry · Journal entries

        Entry 6 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 7 · Journal entry · Journal entries

        Entry 7 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 8 · Journal entry · Journal entries

        Entry 8 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

        Calculator

        Click in an answer field to be able to insert the result.

        Part 9 · Journal entry · Journal entries

        Entry 9 of 9

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      13. Task 13Effects on the financial statements

        What is the impact of the entries on the financial statements?

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        5. Notes

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      14. Task 14Calculation

        Prepare the carrying amount by classification, the inventory movement and the amount recognised as an expense.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Prepare the carrying amount by classification, the inventory movement and the amount recognised as an expense.

        1. €
        2. €
        3. €
        4. €
        5. €
        6. €
        7. €
        8. €

        Checks

        • 0 / 8 steps entered
        • Amounts readable

        Result: Amount of inventories recognised as an expense

      15. Task 15Professional judgement

        Correct the draft note and list the disclosures.

      16. Task 16Conclusion

        Write the conclusion of the file and the open points.

      File review

      Points raised during the review of this file: read them as the preparer would.

      Review notes

      • BlockingResolvedBlocking note: unit costs of the juice and compote not agreed to the joint production; to be corrected.
      • BlockingResolvedBlocking note: relabelling cost not supported in the test of the mislabelled bottles.
      • BlockingResolvedBlocking note: note not agreed to the inventory movement and the trial balance.
      • Non-blockingOpenNon-blocking note: possible disclosure of the post-closing duty cut, to be assessed outside this file.

      Information requests

      • ObtainedRequest to the subcontractor: quotation for relabelling the mislabelled bottles.
      • Assumption documentedRequest to the carrier: invoice for the Distrimax deliveries; estimate documented on the 20X6 rate.

      Completion checklist

      • Workpapers completed and agreed to the documents.Done
      • Entries balanced and agreed to the workpapers.Done
      • Inventory movement agreed to the amount recognised as an expense.Done
      • Reviewer's blocking notes resolved.Done
      • Normative references.To review
      • Commodity broker-trader inventories at fair value less costs to sell: not applicable.Not applicable

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 27).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 2 §2
      • IAS 2 §3
      • IAS 2 §5
      • IAS 2 §10
      • IAS 2 §11
      • IAS 2 §12
      • IAS 2 §13
      • IAS 2 §14
      • IAS 2
      • IAS 2 §16
      • IAS 2
      • IAS 2 §25
      • IAS 2
      • IAS 2 §27
      • IAS 2 §28
      • IAS 2 §29
      • IAS 2 §30
      • IAS 2 §31
      • IAS 2 §32
      • IAS 2 §33
      • IAS 2 §34
      • IAS 2 §35
      • IAS 2 §36
      • IAS 2 §37
      • IAS 2 §38