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percy pilbeam is a book wholesaler. on each sales commission of 4% is payable to the selling agent. the following info is avaiable in respect of total inventories of three of his most popular titles
henry cost 2280 selling pr 2900
dissuasion cost 4080 sp 4000
pilgrim cost 1280 sp 1300acc to nrvr, we should calculate as 2280+4000+1280
why have they solved as 2280+3840+1248?We value each item of inventory at the lower of cost and net realisable value.
The net realisable values in each case are the selling price less the 4% commission that will have to be paid.
In the case of the second two items, the NRV’s are therefore 2,840 and 1,248 which in both cases are lower than the cost.
Have you watched my free lectures on the valuation of inventory? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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