Export Sale Cut-Off and Inventory NRV at a Yangon Garment Exporter
Yangon-based garment exporter Myanmar Brightwear Co. has a 31 March 2025 year end. On 20 March it shipped 800 handbags to a Singapore distributor on consignment; the distributor may return unsold units and has no obligation until it sells to a third party. Each handbag cost MMK 38,000 and is invoiced at MMK 60,000. On 28 March it shipped 1,000 jackets to a German buyer FOB Yangon; control passed on shipment. The invoice was USD 120,000, and the spot rate on 28 March was MMK 2,120 per USD. In February 2025, Brightwear sold 50 jackets to a local customer for MMK 55,000 each (cost MMK 30,000 each). On 2 April the customer returned them because of a defect that existed at the sale date; Brightwear accepted the return and issued a credit note on 5 April, before the financial statements were approved. At 31 March, remaining inventory included 2,000 handbags with cost MMK 38,000 and net realisable value MMK 35,000; 500 jackets with cost MMK 30,000 and NRV MMK 34,000; and 100 damaged jackets with cost MMK 30,000 and NRV MMK 22,000. Ignore tax.
1. Compute revenue for the year ended 31 March 2025. Explain the treatment of the consignment, the FOB sale and the post-year-end return.
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Revenue is recognised when control passes, at the transaction-date rate.
- Consignment: the 800 handbags are not revenue. The distributor has no obligation until onward sale and can return unsold units, so Brightwear retains control. The goods stay in inventory at cost (800 x MMK 38,000 = MMK 30.4m), subject to NRV.
- German sale: control passed FOB Yangon on 28 March, so revenue = USD 120,000 x MMK 2,120 = MMK 254.4m. Do not use the 31 March closing rate; the receivable is retranslated later under IAS 21.
- February sale return: the defect existed at the sale date and the return was accepted before the financial statements were approved, so this is an adjusting event. Reverse revenue 50 x MMK 55,000 = MMK 2.75m and reverse cost of sales 50 x MMK 30,000 = MMK 1.5m; restore inventory at cost unless NRV is lower. Total revenue = MMK 254.4m - MMK 2.75m = MMK 251.65m. The consignment adds no revenue. The net profit effect of the return is a decrease of MMK 1.25m.
2. Compute the inventory write-down and carrying amount for the three inventory groups at 31 March 2025. State the measurement principle applied.
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Measure inventory at the lower of cost and net realisable value (NRV), item by item.
- Handbags: cost 2,000 x 38,000 = MMK 76.0m; NRV 2,000 x 35,000 = MMK 70.0m; write-down MMK 6.0m; carrying amount MMK 70.0m.
- Jackets: cost 500 x 30,000 = MMK 15.0m; NRV 500 x 34,000 = MMK 17.0m; no write-down; carrying amount MMK 15.0m.
- Damaged jackets: cost 100 x 30,000 = MMK 3.0m; NRV 100 x 22,000 = MMK 2.2m; write-down MMK 0.8m; carrying amount MMK 2.2m. Total write-down = MMK 6.0m + MMK 0.8m = MMK 6.8m. Carrying amount of these three groups = MMK 70.0m + MMK 15.0m + MMK 2.2m = MMK 87.2m. The 50 returned jackets would add MMK 1.5m at cost if their NRV is at least MMK 30,000 each; no NRV was given for them.