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Good Day Sir Moffat,
I have a question regarding NRV and cost. This came from the F3 Revision Mock Exam.
At 30 September 2012, the closing inventory of a company amounted to $386,400.
The following items were included in this total at cost:
1) 1000 items which had cost $18 each.These items were all sold in October 2012 for $15 each, with selling expenses of $800.2) 5 items which had been in inventory since 1978 when they had been purchased for $100 each, sold in October 2012 for $1000 each, net of selling expenses.
My solution:
I get the the first part of it, which is:
Cost = 1000 x $18 = $18000
NRV = 1000 x $15 = $15000-800 = $14200The cost should’ve been valued as 14200, but since both are included in the inv. cost, we subtract 14200 from 18000, which is 3800.
The second part got me a bit confused, but here is the solution.
Cost = 5 x $100 = $500
NRV = 5 x $1000 = $5000My question is, why is item no. 2 not relevant and no adjustment were necessary regarding item no. 2?
Thank you in advance Sir Moffat.
God bless! 😀We always value at the lower of cost and net realisable value.
So in the case of item 2, they should be valued at cost. They have already been included in the total at cost and therefore no adjustment is necessary.
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