Inventory

This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.

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August 8, 2016 at 10:06 pm #332117
firelion28
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What would be the effect on a company’s profit for the year of discovering inventory with cost of 1250 and a net realisable value of 1000 assuming that this item of inventory had not been included in the original inventory count?

A an increase of 1250
B an increase of 1000
C a decrease of 250
D no effect

Sir I am unable to understand this question and how I should proceed

Pls help
August 9, 2016 at 6:15 am #332152
John Moffat
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You have obviously not been watching my free lectures – they are a complete course for Paper F3 and I cannot possibly type them all out here!!

You need to read the provisions of IAS2 – inventory has to be valued at the lower of cost and NRV.
August 9, 2016 at 8:05 am #332171
firelion28
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SO sir wont there be an decrease in profit??
August 9, 2016 at 2:57 pm #332211
John Moffat
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No. The inventory has not been included, so inventory needs increasing.

Higher inventory means lower cost of sales and therefore higher profit.
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