Page 62 - Accountancy_F5

Solution 2.7

Articles Costs NRV Valuation
TZS TZS TZS
1 2,500 2,000 2,000
2 3,000 3,750 3,000
FOR ONLINE READING ONLY
3 7,500 10,000 7,500
4 4,500 4,250 4,250

5 3,750 3,250
LANGUAGE EDITING 3,250
LANGUAGE EDITING
6 6,500 5,250 5,250

7 10,250 13,500 10,250

8 9,000 10,250 9,000
9 10,500 7,750 7,750
TOTAL 57,500 60,000 52,250

The value of inventory = TZS 52,250

The results indicate that the value of inventories calculated using the article method
(TZS 52,250) is relatively lower than that calculated using the category method (TZS
55,500). However, it is important to understand that the inventory value under the article
method will not always be lower than that of category method. The crucial factor is
for management to select a method that best aligns with the nature of the assets. For
certain assets, it may be more appropriate to group them for valuation purposes, while
for others, it may not. For example, assets such as chairs, tables, and cupboards can be
accurately grouped as ‘furniture’, and their value determined using the category method.
On the contrary, a firm may choose not to group the houses it owns as ‘buildings’ for
various reasons, instead opting to determine the correct value for each house individually
using the article method. Once the valuation methods are decided upon, they should be
consistently applied.

Exercise 2.3
(a) Why is it important to categorise inventories into groups for valuation purposes?
(b) A firm holds three types of items: X, Y, and Z. These items need to be packaged
before they can be sold. The cost price, selling price, and packaging costs for these
items are given below:

Student’s Book Form Five
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