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CPUT FIA213S Inventory and Foreign Exchange Transactions Handout R240,21
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CPUT FIA213S Inventory and Foreign Exchange Transactions Handout

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This is a comprehensive and detailed handout on Inventory and Foreign Exchange Transactions for Fia213S. Essential!!

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  • August 16, 2024
  • 10
  • 2021/2022
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  • Prof. benedict
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HANDOUT
INVENTORY AND FOREIGN EXCHANG TRANSACTIONS
QUESTION 1 (12 MARKS) (Sup 2009)

Ignore VAT in this question.

Mickey Mouse Limited in Somerset West uses the perpetual inventory method and has
a financial year end of 31 December. Mickey Mouse Limited imports inventory on a
regular basis from Pluto Ltd in the USA. The following transactions have taken place
regarding inventory:
13 November 20X8 Purchased 600 units of inventory at 100 USD each from Pluto Ltd on
a DAT basis.

The inventory was loaded in America on 14 November and offloaded
in Cape Town harbour on 23 December.

24 December 20X8 Paid R60 000 by cheque for the transportation of the inventory from
Cape Town harbour to the storeroom in Somerset West.
31 December 20X8 The gross realizable value of the inventory is R520 000 and the
estimated selling costs are expected to amount to R 50 000.

28 January 20X9 Issued a cheque to Pluto Traders in America to settle the amount
owing to them.

Spot rates: 13 November 1$ = R7,20
14 November 1$ = R7,50
23 December 1$ = R7,00
24 December 1$ = R7,30
31 December 1$ = R6,50
28 January 1$ = R6,70

REQUIRED:
Record the above transactions in the general journal of Mickey Mouse Ltd.
Note: Narrations are not required.

The transaction date determined according to:

FOB (FREE ON BOARD)
BASIS The risk and rewards are transferred as soon as the goods are
loaded onto the ship at the foreign port. (Free on board basis).OR
Risk and rewards transfer when goods are delivered over the ship’s
rail at the port of shipment.

DAT (DELIVERY AT TERMINAL)
BASIS The risk and rewards are transferred only when the goods arrive
safely in the local harbour.
THUS: Risk and rewards are transferred only when the goods are
unloaded at the named destination terminal.

, 2


QUESTION 1 (12 MARKS)
JOURNAL OF MICKEY MOUSE LTD

DR CR
23 Dec Inventory  
420 000
Foreign Creditor: Pluto Ltd
420 000


600 u X 100USD = 60 000USD X R7



Dec 24 Inventory  60 000

Bank  60 000



Dec 31 Foreign Creditor: Pluto Ltd  
30 000
Foreign Exchange gain  
30 000
R420 000 – (60 000USD X R6,50 = R390 000)


Dec 31 Inventory write off  10 000

Inventory  
10 000
(Cost = R420 + 60 000 = R480 000) -
(NRV = R520 000 – R50 000 = R470 000)


Jan 28 Foreign Exchange loss  12 000

Foreign Creditor: Pluto Ltd  
12 000
(60 000USD X R6,70 = R402 000) – R390 000


Foreign Creditor: Pluto Ltd  402 000

Bank  402 000




24 X ½ = (12)

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