Page 60 - Accountancy_F5

Required: Calculate the net realisable value (NRV) of Blue Dental Care Ltd.’s
inventory after considering the repackaging costs.
(b) The following are the items of inventory held by Mtavangu in his store as on 31
st
December, 2023:

Item Number of items in store Per unit cost Per unit NRV
FOR ONLINE READING ONLY
TZS TZS
P 120 15,000 18,000
Q 80 75,000 67,500
LANGUAGE EDITING 12,000
R 154 9,000
LANGUAGE EDITING
Required: Compute the total value of Mtavangu’s inventory to be reported in
financial statements.
(c) Msami has 200 mosquito nets in inventory, each costing TZS 8,000. After incurring
a packing cost of TZS 500 per net, each net can be sold for TZS 10,000.

Required:
(i) Calculate the total net realisable value (NRV) of the mosquito nets after
considering the packing costs.
(ii) Determine the value that should be reported for the inventory.

Inventory group and valuation

Inventory items can be classified into “groups” within the sections based on certain
commonalities. This grouping facilitates easy location, tracking, and reporting of
inventory items in financial statements. It is advisable to group items of a specific brand
or feature together for ease of tracing or extracting all items of that particular brand or
feature. For instance, a retailer might categorise products into groups such as beverages
(water, soda, juice etc.), cereals (rice, maize, beans, peas etc.), and soaps (liquid soaps,
detergent soaps, medicated soaps, soap bars etc.). Typically, inventory should be valued
at a lower cost or Net Realisable Value (NRV). However, this becomes complex when a
business deals with a wide variety of products. In such cases, determining the cost and
NRV can be challenging unless some products are categorised into inventory groups.
There are two basic methods used to group and value inventory:
Category method: In this method, similar items like soaps are grouped together,
and then the value of the inventory is determined by comparing
the cost and NRV for each category.

Article method: In this method, the lower cost or NRV for each item is taken,
and then these values are summed up to get the total value of
all items in the group (articles).

Student’s Book Form Five
47

ACCOUNTANCY_DUMMY_23 JUNE.indd 47 23/06/2024 17:34
23/06/2024 17:34
ACCOUNTANCY_DUMMY_23 JUNE.indd 47