QUESTION 3 Chukwuemeka Agro-Processing Industries Limited (CAPIL) is an agro-allied company listed on the Nigerian Exchange Group (NGX). It processes cassava into various products including cassava flour, starch, and ethanol. The company's financial year ends 30 June 2024. The following issues arose during the audit of CAPIL's financial statements for the year ended 30 June 2024: ISSUE 1 – Inventory Valuation CAPIL's closing inventory comprised the following at 30 June 2024: | Product | Cost (N'000) | Estimated Selling Price (N'000) | Costs to Complete (N'000) | Selling Costs (N'000) | |-----------------|--------------|----------------------------------|---------------------------|-----------------------| | Cassava flour | 28,500 | 35,000 | – | 3,200 | | Cassava starch | 41,200 | 38,000 | – | 2,100 | | Ethanol (WIP) | 19,600 | 30,000 | 5,400 | 1,800 | | Raw cassava | 8,300 | 9,000 | – | 1,200 | Note: Raw cassava is used exclusively in the production of cassava starch, which is currently selling below cost. ISSUE 2 – Inventory Write-Down Reversal In the prior year (30 June 2023), CAPIL wrote down its cassava flour inventory by N4,800,000 to its NRV. In the current year, market conditions have improved significantly, and the NRV of cassava flour now exceeds its original cost. The Finance Director has proposed reversing the full N4,800,000 write-down and crediting it to retained earnings directly. ISSUE 3 – Consignment Inventory CAPIL holds N12,500,000 worth of inventory on behalf of Farmgate Distributors Nigeria Limited (FDNL) at its Port Harcourt warehouse. CAPIL has included this inventory in its closing inventory balance. Additionally, CAPIL has dispatched goods worth N6,800,000 to a customer in Enugu under a sale-or-return arrangement. The goods have not yet been accepted by the customer as at 30 June 2024. CAPIL has derecognised these goods from inventory and recognised revenue. Required: (a) Calculate the total value of CAPIL's inventory that should be recognised in the statement of financial position as at 30 June 2024, applying IAS 2. Show all workings and justify the treatment of raw cassava. (12 marks) (b) Advise CAPIL's Finance Director on the correct accounting treatment for the reversal of the N4,800,000 inventory write-down, with reference to IAS 2. (5 marks) (c) Evaluate the accounting treatment adopted by CAPIL in respect of: (i) The consignment inventory held on behalf of FDNL; and (ii) The goods dispatched to the Enugu customer under the sale-or-return arrangement. State the correct treatment in each case with reference to the appropriate standard. (8 marks) (Total: 25 marks)