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You are preparing the final accounts for a business. The cost of the items in closing
inventory is $41,875. This includes some items which cost $1,960 and which were
damaged in transit. You have estimated that it will cost $360 to repair the items,
and they can then be sold for $1,200. What is the correct inventory valuation for
inclusion in the final accounts?
A $39,915
B $40,755
C $41,515
D $42,995total cost of inventory is 41875, from which items worth 1960 are damaged. So the remaining cost of inventory would be 39915.
now comes the issue with inventory of 1960.
Here is the concept of lower of cost and nrv
cost is given, which is 1960
but its damaged, and there’s a possibility that its cost might nt be recovered in current condition.
now we’ll calculate its nrv.
which is:
estimated to cost to sell: 1200
– estimated cost to repair: 360
= 840cost: 1960 ~ Nrv: 840
so this inventory will be reported at 840, because nrv is lower than cost.total cost of inventory will now be:
39915 + 840
= 40755Answer: 🙂
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