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Hi sir. can u explain this one?
The closing inventory of X amounted to $116,400 excluding the following two inventory lines:
1. 400 items which had cost $4 each. All were sold after the reporting period for $3 each, with selling expenses of $200 for the batch.
2. 200 different items which had cost $30 each. These items were found to be defective at the end of the reporting period. Rectification work after the statement of financial position amounted to $1,200, after which they were sold for $35 each, with selling expenses totalling $300.
Which of the following total figures should appear in the statement of financial position of X for inventory?
A $122,300
B $121,900
C $122,900
D $123,300You will know from the free lectures that inventory should be valued at the lower of cost and net realisable value.
In the case of Item 1, the cost is $1600, and the NRV is $1000 ( (400 x 3) – 200).
So they should be valued at NRV of $1,000In the case of Item 2, the cost is $6000. The NRV is $5,500 ( (200 x 35) – 1200 – 300),
So they should be valued at $5,500.At the moment, the inventory figure of 116400 excludes these two items, so the correct inventory is 116400 + the two values above.
Hope that helps 🙂
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