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how do you treat inventory when asked,
“Inventory at 31 March 20×7(closing inventory) was valued at a cost of $95,000.Included in this balance were goods that had cost $15,000.These goods had become damaged during the year & it is considered that,following remedial work,the goods could be sold for $5,000.”
Please give reasons.Thank you.I’m not sure what you mean when you ask “how do you treat inventory”
Inventory should be valued at the lower of cost and net realisable value
In the scenario that you have given, net realisable value is the issue
Of the $95,000 cost of closing inventory, $15,000 is apparently worth less than cost so we need to calculate the NET realisable value – given to us here as $5,000
So, if $15,000 cost is to be treated separately, $80,000 is correctly valued as at cost
And we need to add to that the $5,000 net realisable value of the other $15,000 cost of inventory
This gives us a total inventory value for the financial statements of $85,000
OK?
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