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IAS 2Case studies (Step 3 of 5)

Case study

Step 3 of 5
Practical caseIAS 2L1 · Fundamental

Trading company: cost of purchase of an imported lot, FIFO and weighted average cost

5 documents8 tasks≈ 45 min
0 / 10 items completed
Standards
IAS 2 — Inventories
Assistance levelFull guidance · strong assistance
  • Method: shown
  • Checklist: shown
  • Hints: shown
  • Step-by-step work: shown

Case brief

Situation

Lumivia Distribution SAS (a fictitious entity) buys and resells L40 model LED lamps, all of the same nature and use. It imports its lamps from a foreign manufacturer and stores them in its Lyon warehouse before delivering them to DIY stores. You are preparing the financial statements for the year ended 31 December 20X1.

Your assignment

Calculate the cost of purchase of the lot received on 15 March 20X1 and record the entry for its receipt into inventories. Then calculate the cost of sales and closing inventories using first-in, first-out (FIFO) and using the weighted average cost, select the formula required by the entity's accounting policy, reconcile the cost of sales, record the corresponding entry and measure the impact on the financial statements.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Fundamental level: the method, help and references are shown.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 5 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 10) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

5 documents: open each one to read it.

Document 1Extract

Stock card at 1 January 20X1

Stock card at 1 January 20X1, L40 lamps: 2,000 units at a unit cost of 12, i.e. 24,000.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Opening quantity in stock2,000 units
Unit cost of opening inventories€12.00
Opening inventories€24,000.00
Quantity received on 15 March 20X18,000 units
Gross purchase price€115,000.00
Trade discount€5,750.00
Import duties€4,600.00
Recoverable VAT paid on import€23,200.00
Transport and handling to the warehouse€2,150.00
Quantity sold in 20X17,000 units
Delivery costs to customers€1,800.00

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 sort5

  • Stock card at 1 January 20X1

  • Supplier's invoice

  • Customs declaration and forwarding agent's invoice

  • Sales register 20X1

  • Accounting policy memo

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      8 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Calculation

        Calculate the cost of purchase of the lot received on 15 March 20X1.

        Start from the data in the pieces, set the formula, check the unit and the order of magnitude.

        Calculator

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

        Part 1 · Calculation

        Calculate the cost of purchase of the lot received on 15 March 20X1.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      2. Task 2Journal entries

        Record the entry for the receipt of the lot into inventories.

        Identify the accounts affected and the direction of each movement; check the balance.

        Calculator

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

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        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

      3. Task 3Calculation

        Calculate the cost of sales and closing inventories using FIFO and using the weighted average cost.

        Start from the data in the pieces, set the formula, check the unit and the order of magnitude.

        Calculator

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

        Part 1 · Calculation

        Calculate the cost of sales and closing inventories using FIFO and using the weighted average cost.

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

        Checks

        • 0 / 5 steps entered
        • Amounts readable

        Result: Closing inventories under the weighted average cost

      4. Task 4Analysis

        Which cost formula do you apply and what do you answer the sales director?

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      5. Task 5Calculation

        Reconcile the cost of sales from opening inventories, purchases and closing inventories.

        Start from the data in the pieces, set the formula, check the unit and the order of magnitude.

        Calculator

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

        Part 1 · Calculation

        Reconcile the cost of sales from opening inventories, purchases and closing inventories.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      6. Task 6Journal entries

        Record the cost of sales entry for 20X1.

        Identify the accounts affected and the direction of each movement; check the balance.

        Calculator

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

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        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

      7. Task 7Effects on the financial statements

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

        For each financial statement, state the line affected, the direction and the amount.

        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

        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

      8. Task 8Conclusion

        Write the conclusion.

        Write a conclusion that cites the facts and the treatment chosen.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      Workspace

      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 / 10).

      Document this file

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

      Normative references

      • IAS 2 §10
      • IAS 2 §11
      • IAS 2 §25
      • IAS 2 §27
      • IAS 2 §34