Preparation of financial statements of sole traders

Question 1

What concept is inventory valuation part of

Answer 1

Prudence

Question 2

Should inventory be valued at the lower of cost and net realisable value

Answer 2

yes

Question 3

What is net realisable value

Answer 3

Net realisable value is the selling price of inventory minus any expenses incurred in getting the goods into a saleable condition.

Question 4

What does sale or return mean?

Answer 4

Transactions are not recognised until the second business has sold those good to its own customers

Question 5

If goods on sale or return have not been sold by second business…

Answer 5

not included in sales revenue of first business
included in closing inventory of first
not included in purchases of second biz
not included in closing inventory of second biz

Question 6

Double entry for goods taken for own use

Answer 6

Debit drawings on sofp

Credit purchases on income statement