@ zainabaali : That 800 is part of 1000 units as told in the question as closing inventory (or inventory at the end of the year). Out of those 1000 units 200 are damaged and 800 are undamaged.

in interpreting the question I assume the selling price for the damaged goods was $14 and is now $12- as it says they will now be sold for $12 AFTER the minor repairs of $2 each, meaning has already been accounted for this discount of $2.

I think you should read it like this” the damaged units can now be sold for 12, but work has to be done before anyone is willing to buy them and that work cost you 2 p/u”.

Dear sir i have a small confusion . While calculating the cost of damaged units u have taken its nrv. i.e (800 units x 11 = 8800 ) + (200 × 10 = 400)…..i want to know why u have used 10 for the damaged 200 units….in my opinion it might be 13 (11 + 2 additional cost). Waiting for ur kind reply.

You miss out the point here. This math is about valuing the closing inventory. For those damaged units the selling price is 12. So anyway you can’t valuing them over 12. On the other hand you had to spend extra $2. So tha value you going to get after selling them is $10. That’s why the NRV for damaged goods going to be 10.

HI Chris, For the 800 undamaged goods, I understand the principle of taking NRV which is lesser. However, if you see historical cost, there is already $11 with overhead and $5 direct cost incurred which is a fact. So, I was expecting to consider $14 ($12+$2) for damaged as the $2 is an extra cost to be incurred for sales to be happened or to be in a usable condition? With regards to good stock, it should be anyway at historical average cost which is $ 11. Can you please help to understand where I am missing? Thanks Vijay

But the 800 are not damaged, so therefore can be sold for normal selling price of $12. But as per the lecture, adopting the accounting concept of prudence (lower of cost & NRV) so we use cost @ $11 per unit as it is lower then the NRV of $12.

The other 200 are damaged and so have to be taken carried @ $10 as this is lower than cost of $11.

I think that’s right & might make sense! Though it could be a tricky question in an exam. I first incorrectly had 800 x 12 = 9600 Plus, 200 x 10 = 2000 giving 11,600 which was incorrect

For the 800 that are undamaged, the NRV is $12 per unit as it is not necessary to incur the $2 per unit repair cost to sell them, hence the $11 cost is the lower.

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zainabaali says

Dear Chris,

do you mind if you explain the 800 undamaged came from where?

ty

sh4n1 says

@ zainabaali : That 800 is part of 1000 units as told in the question as closing inventory (or inventory at the end of the year). Out of those 1000 units 200 are damaged and 800 are undamaged.

jenny91 says

PLEASE HELP-

in interpreting the question I assume the selling price for the damaged goods was $14 and is now $12- as it says they will now be sold for $12 AFTER the minor repairs of $2 each, meaning has already been accounted for this discount of $2.

I appreciate some clarification.

thank you.

lucie13 says

I think you should read it like this” the damaged units can now be sold for 12, but work has to be done before anyone is willing to buy them and that work cost you 2 p/u”.

noah says

CORRECT

shahidyarkhan says

Dear sir i have a small confusion . While calculating the cost of damaged units u have taken its nrv. i.e (800 units x 11 = 8800 ) + (200 × 10 = 400)…..i want to know why u have used 10 for the damaged 200 units….in my opinion it might be 13 (11 + 2 additional cost).

Waiting for ur kind reply.

Thanks

Shahid yar

ACCA 4491058

3351580bd says

You miss out the point here. This math is about valuing the closing inventory. For those damaged units the selling price is 12. So anyway you can’t valuing them over 12. On the other hand you had to spend extra $2. So tha value you going to get after selling them is $10. That’s why the NRV for damaged goods going to be 10.

vijay says

HI Chris,

For the 800 undamaged goods, I understand the principle of taking NRV which is lesser.

However, if you see historical cost, there is already $11 with overhead and $5 direct cost incurred which is a fact. So, I was expecting to consider $14 ($12+$2) for damaged as the $2 is an extra cost to be incurred for sales to be happened or to be in a usable condition?

With regards to good stock, it should be anyway at historical average cost which is $ 11.

Can you please help to understand where I am missing?

Thanks

Vijay

vijay says

Ok, I got it. So all logic here is not to inflate inventory as a NRV is already established.

Please advice. thanks.

william9 says

But the 800 are not damaged, so therefore can be sold for normal selling price of $12. But as per the lecture, adopting the accounting concept of prudence (lower of cost & NRV) so we use cost @ $11 per unit as it is lower then the NRV of $12.

The other 200 are damaged and so have to be taken carried @ $10 as this is lower than cost of $11.

I think that’s right & might make sense! Though it could be a tricky question in an exam.

I first incorrectly had 800 x 12 = 9600

Plus, 200 x 10 = 2000 giving 11,600 which was incorrect

P2-D2 says

Hi,

Good logic, and well worked out!

Thanks

chandanchetan says

Dear sir,

In my opinion, For 800 unit NRV is10 per unit which is lower than cost. Hence, 800 unit should also be valued at 10 per unit.

Help me out sir, if i am wrong.

P2-D2 says

Hi,

For the 800 that are undamaged, the NRV is $12 per unit as it is not necessary to incur the $2 per unit repair cost to sell them, hence the $11 cost is the lower.

Thanks