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Valley Fruit Limited Produces orange and lime from a process that yields a paste that can be sold to Colgate Palmolive Limited. The paste is considered insignificant in value and can only be sold for a nominal market value. The cost assigned to the paste is its market value less incremental cost incurred subsequent to the point of split-off. Information concerning a batch processed in January 2013 at a joint cost of $100 000 as follows:
Products Units Produced Additional Cost Market Value
Orange 10 000 $25000 $60 000
Lime 20 000 $20 000 $60 000
Paste 4 000 $2000 $7000Management deems the additional cost to be incurred after split off .
Required:
Assuming the entity uses the relative sales value method and the NRV of the paste is to be credited to the process account, calculate how much joint cost is to be allocated to orange and Lime.Is the market values given the NRV?
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The net realisable value is the market value less the addition cost (so for Orange for example, it is $35,000).
The paste is a by-product and therefore the NRV is subtracted from the joint cost of 100,000. The remaining 95,000 is apportioned between Orange and Lime on the basis of their total NRV’s
(You will find it useful to watch the free lecture on joint-costs!)
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