Why is it that POST YEAR-END sales invoices inspected to ensure that the goods sold are recorded are at correct NRV to assess its reasonableness than PRIOR YEAR END sales invoices?
Suppose the y/e is 31 December for a retail chain. A brand of jumpers costing $30 are selling for $50.In the January sales all clothes are promoted as 50% off.
What is the net realisable value of the jumpers in INVENTORY as at 31 December?
It’s $25, which is less than cost and therefore the inventory valuation must be written down from cost $30 by making an allowance of $5 per item.
The sale of inventory after the reporting date is an example of an ADJUSTING event.