Acca financial Accounting (FA) Study Text ac ca (FA)

Chapter 6 

KAPLAN PUBLISHING

 

103 

 

In particular, any percentage additions to cover overheads must be 

based on the normal level of production. If this provision was not 

made, the inventory could be overvalued at the end of a period of 

low production, because there would be a smaller number of items 

over which to spread the overhead cost. 

These groups of cost must relate to either: 

•

 

bookcases sold during the year, or 

•

 

bookcases in inventory at the year-end (i.e. 200 bookcases). 

Fair value less further costs to sell (NRV) 

The comparison between cost and fair value less further costs to sell 

must be made item by item, not on the total inventory value. It may be 

acceptable to consider groups of items together if all are worth less than 

cost.