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(1) while preparing the year end financial statements ,the accountant of Y is informed that items of inventory which cost $ 10,000 have been discovered in the inventory room. They have been omitted from the company’s records. One of these inventory items has been damaged. It cost $ 7,000 and could be sold for $ 6,000 , but only after $ 500 has been spent repairing it.
How must should Y increase her inventory value by to record these items?
Hey Nat,
In accordance with IAS 2, inventories are to be recorded at lower of cost or net realisable value (nrv), this done not to overstate the inventory values. NRV is, inventory sales value – costs to sell. In this case 3000 worth of goods is undamaged, for the rest of the goods it’ll be7000(costs) : 6000(sales) – 500(cost to sell)
= 7000 : 5500(nrv)
= 7000 > 5500
Therefore since 5500 is lower, the inventory value should be $3000 undamaged+ $5500 = $8500
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