Kaplan Exam Kit question 73-Razor

On 30 September 20X4 Razor’s closing inventory was counted and valued at its cost of $1 million. This included some items of inventory which had cost $210,000 and had been damaged in a flood on 15 September 20X4. These are not expected to achieve their normal selling price which is calculated to achieve a gross profit margin of 30%. The sale of these goods will be handled by an agent who sells them at 80% of the normal selling price and charges Razor a commission of 25%. At what value will the closing inventory of Razor be reported in its statement of financial position as at 30 September 20X4? Why do we deduct the expected loss from $1 million to arrive at the final answer?