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The items in closing inventory cost $15,000 to purchase. In addition there was carriage inwards of $1,000.
The goods would cost $2,500 to clean, packing and distribute and they would then sell for $12,000. At what amount should the goods be values in the financial statements?
What are purchases
$16,000
$14,000
$14,500
$9,500
The answer D. But my question is that lower off is applied on closing inventory so how are we applying it on our purchases (expenses).
It should be entire expense considered which is 16000.If the goods had been sold, the position would have been:
Sales 12,000
Cost of purchasing goods sold 16000
Cost of work done 2500Loss = 6500.
The goods are not yet sold and must be valued at the lower of cost and Nrv ie lower of 16000 and 9500.
Lowering the value of closing inventory from 16000 to 9500 causes a reduction in asset value of 6500 ie the loss is recognised as soon as foreseen.
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