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John Moffat.
John Moffat.-
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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 effectSir I am unable to understand this question and how I should proceed
Pls help
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.
firelion28
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SO sir wont there be an decrease in profit??
John Moffat
- Topics: 57
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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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