Paper 3 · Inventory valuation
Goods with a selling price of 10 000, based on Mr Reedy's 25% mark-up on cost) were sent to a customer on a sale or return basis before the year end. The customer had not yet indicated whether he would keep the goods. How should these goods be treated in the seller's closing inventory at the year end?
AExcluded from the seller's inventory entirely, because the goods have already physically left the seller's premises.
BExcluded from inventory and recorded instead as a trade receivable, because the customer is expected to eventually keep and pay for the goods.
CIncluded in the seller's inventory at cost, because ownership and the risks of the goods have not yet passed to the customer.
DIncluded in the seller's inventory at the full $12 500 selling price, because a sale transaction has already taken place.
Explanation: Revenue is only recognised once the customer accepts the goods. Until then, ownership and risk remain with the seller, so the goods stay in the seller's inventory, valued at cost.
Derived from ZIMSEC Accounting Paper 3, June 2019, Q3
