Compute, in accordance with IAS 2 Inventories, the value at which the inventory of these motorcycles should be shown in the final accounts of Sean Morris Plc as at 30th September 2020. Also, further determine the total cost of the abnormal wastage of material that has been incurred on the conversion of the four motorcycles.
The main activity of Sean Morris Plc is to buy old motorcycles, which are sold after converting them into a saleable condition. On 30th September 2020, the end of the company’s financial year, Sean Morris Plc had the following vehicles that were at various stages in the process of being converted to be ready for sale.
|
Motorcycle |
Purchase price |
Conversion costs incurred to date |
Expected further costs before the sale |
Expected selling price |
Costs incurred on bringing to present location |
|
|
£ |
£ |
£ |
£ |
£ |
|
Suzzuk 750 |
4,735 |
440 |
- |
7,000 |
540 |
|
Kawasak 230 |
6,415 |
770 |
75 |
9,650 |
470 |
|
Benley 800 |
1,775 |
630 |
300 |
3,000 |
375 |
|
Yamhan 90 |
3,840 |
- |
1,000 |
5,900 |
230 |
Notes:
- Expected selling expenses for each motorcycle are 4% of the expected selling price.
- A quarter of the conversion costs are related to materials, but 16% of the cost of materials used in the conversions are considered to be abnormal wastage, due to a poor quality type of material that has been used.
Required:
Compute, in accordance with IAS 2 Inventories, the value at which the inventory of these motorcycles should be shown in the
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