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(1) one item of X ‘s inventory cost $ 3,000 to purchase.
It will cost $ 300 to get the inventory ready for sale and $ 200 auctioneer’s fees to sell the inventory. He plans to sell it for $ 3,400. It would cost $ 3,700 to buy a similar item of inventory. In his draft financial statements he has valued the inventory at $ 2,900.
Which inventory valuation method has he used ?
(i)historical cost
(ii)net realisable value
(iii)replacement cost
(iv)expected selling price.3400 – 300 – 200 = 2900
(ii) net realisable value.
In accordance with IAS 2, inventory must be held at lower of COST or NRV (net realisable value)
NPV is calculated by deducting the expenses incurred to sell the inventory with its selling price.
Cost = 3000
NRV = Sale Price less Expenses to sell I.e 3400 – 300 – 200 = 2900So he is correct in stating this amount.
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