Accounting Online Program Certification Practice Test

What amount should be reported for inventory in Epsilon's statement of financial position?

1. £284,000

2. £283,650

3. £284,500

4. £280,000

The correct answer is: £283,650

To determine how much should be reported for inventory in Epsilon's statement of financial position, it is important to refer to the relevant accounting principles that govern inventory valuation. The correct valuation must take into account various factors, such as the cost of goods available for sale, net realizable value, and any applicable discounts or costs. The chosen amount of £283,650 suggests it was calculated by assessing the inventory's actual cost and making necessary adjustments for issues like obsolescence, returns, or markdowns that might reduce the value of the inventory on hand. This aligns with the accounting principle of conservatism, which dictates that inventory should not be overstated and should reflect a value that the company expects to realize upon sale. In contrast to the other values presented, £283,650 likely reflects an accurate and reasoned calculation of inventory after considering all relevant variables. This precision in valuation is essential because inventory can significantly impact the balance sheet and affect key financial metrics that stakeholders analyze. A thorough understanding of inventory valuation methods, such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), or weighted average cost, may also play a role in how Epsilon accounted for its inventory. The selected amount is consistent with recognized accounting