Flourish and Blotts Ltd., a shop selling books about magic, uses the perpetual inventorymethod. At the end of a financial year the firm undertakes a stocktake and discovers thatthere is an amount of inventory that cannot be accounted for. The stocktake also reveals that,'Antiquated Spells', a line of inventory has become obsolete and can only be sold for 20%below cost.Discuss why a stocktake is necessary and how to account for the missing stock and theobsolete inventory.

There are many reasons for obsolete inventory, but the most common is that the product is no longer…

'Antiquated Spells', a line of inventory has become obsolete and can only be sold for 20% below cost. Discuss why a stocktake is necessary and how to account for the missing stock and the obsolete inventory.

'Antiquated Spells', a line of inventory has become obsolete and can only be sold for 20% below cost. Discuss why a stocktake is necessary and how to account for the missing stock and the obsolete inventory.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

Question

Flourish and Blotts Ltd., a shop selling books about magic, uses the perpetual inventory
method. At the end of a financial year the firm undertakes a stocktake and discovers that
there is an amount of inventory that cannot be accounted for. The stocktake also reveals that,
'Antiquated Spells', a line of inventory has become obsolete and can only be sold for 20%
below cost.
Discuss why a stocktake is necessary and how to account for the missing stock and the
obsolete inventory.

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