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A machine constructed for another customer for a contracted price of $36,000. This has recently been completed at a cost of $33,600. It has now been discovered that in order to meet certain health and safety regulations modifications at an extra cost of $8,400 will be required. The customer has agreed to meet half of the extra cost.
What should be the total value of these two items of inventory in the statement of financial position?
Answer is kit: cost is 33600+4200 = 37800 and NRV is 36000-4200= 31800. So record at lower at 31800. It really don’t make sense.
I am unable to get what he has done. Cost for us should be 33600+8400 (total cost incurred) = 42000 and NRV should be 36000+4200 (cost promised by customer to pay)= 40200 so record at 40200.
What has been done is correct. It specifically states that half of the modification cost will be met by the customer and so the other half by ourselves.
Half of the cost is therefore added on to the cost of the inventory and the selling price is also net of this figure too.