Hi, dear tutor. ?f inventory cost is $150 but NRV is $100. In that case we have to record the lowest cost $100 in balance sheet relating to prudence concept. It's clear. But how about the remaining amount 50$ (150-100)? Is it expense in Sp? If answer is yes, is it expense before tax or after tax? Thanks in advance for your answer.
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NRV
3y ago#1There is no recording of the 'extra' $50. They are two separate things.
When the inventory was purchased the cost was recorded as purchases (Dr Purchases Cr Cash or payables). That entry does not change.
When the closing inventory it recorded at the end of the year it is recorded as being $100. It is the normal entry Dr Inventory Cr SOPL account with $100.
The end result will mean that the profit (before tax) ends up being $50 less than it otherwise would have been had the inventory been valued at $150, but no separate entry is required.
Have you watched my free lectures (in particular those regarding the recording of inventory)? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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