Inventory

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March 3, 2016 at 3:31 am #303136
abrizni10
Member
- Topics: 55
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Sir I’m quite struggling in this question.
At the year end a company discovers that some inventory is damaged.
This inventory originally cost $2000 and to replace it would now cost $1900.
It would normally sell for $2400 but can now only be sold for $2200 if repairs costing $400 are undertaken.
At what value should the damaged inventory be shown in the financial statements?
March 3, 2016 at 8:09 am #303172
John Moffat
Keymaster
- Topics: 57
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Inventory must be valued at the lower of cost and net realisable value.
The cost is $2,000.
The net realisable value is 2,200 – 400 = $1,800.
Therefore it should be valued at $1,800.
I do suggest that you watch our free lectures on inventory where this rule is explained.
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