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maam can you help me figure out how the below two methods of inventory valuation are any different from each other. I feel the only thing added extra in the 2nd point is ‘comparing NRV against costs’, whereas first one is a simple review of post yr end sales invoices for NRV analysis.
-Select a sample of year?end finished goods and review post year?end sales invoices to ascertain if net realisable value (NRV) is above cost or if an adjustment is required.
-Select a sample of items included in WIP at the year?end and ascertain the final unit cost price, verifying to relevant supporting documentation, and compare to the unit sales price included in sales invoices post year?end to assess NRV.
My apologies for missing this post yesterday.
The 1st is considering the NRV of FINISHED goods – the 2nd is considering the NRV of UNFINISHED goods (WIP).
Suppose there is one product: Finished good cost – $100 – selling price $120 – selling/distribution cost $5. So NRV is $115 > cost $100 is fine. Finished goods will be correctly valued at cost.
But suppose there are units of WIP with cost $70 – you can’t compare directly with SP. If the final unit cost would be $120, i.e. costs to complete $50, the WIP would have to be be written down by $5.
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