Question 1 On 1 April 20X4 Triangle sold maturing inventory that had a carrying value of R3 million (at cost) to Factor all, a finance house, for R5 million. Its estimated market value at this date was in excess of

Corporate Financial Accounting
14th Edition
ISBN:9781305653535
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter14: Financial Statement Analysis
Section: Chapter Questions
Problem 14.5BE: Inventory analysis A company reports the following: Cost of goods sold 435,000 Average inventory...
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Question 1 On 1 April 20X4 Triangle sold maturing inventory that had a carrying value of R3 million (at cost) to Factor all, a finance house, for R5 million. Its estimated market value at this date was in excess of R5 million and is expected to be R8.5 million as of 31 March 20X8. The inventory will not be ready for sale until 31 March 20X8 and will remain on Triangle's premises until this date. The sale contract includes a clause allowing Triangle to repurchase the inventory at any time up to 31 March 20X8 at a price of R5 million plus interest at 10% per annum compounded from 1 April 20X4. The proceeds of the sale have been debited to the bank and the sale (and associated profit) have been recognised in Triangle's statement of profit or loss. Required: (a) Discuss how the sale of inventory should be accounted for in accordance with the principles of IAS 18 Revenue and the IASB's Conceptual Framework for Financial Reporting. (b) Prepare any accounting adjustments required to Triangle's financial statements for the year ended 31 March 20X5
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