You are preparing the financial statements for a business. The cost of the items in closing inventory is $10,469. This includes some items which cost $490 and which were damaged in transit. You have estimated that it will cost $90 to repair the items, and they can then be sold for $300.
What is the correct inventory valuation for inclusion in the financial statements?
Answer
Inventories are measured at the lower of cost and net realisable value (NRV).
Net realisable value = estimated selling price in the ordinary course of business – the estimated costs of completion – the estimated costs necessary to make the sale
$
Original inventory valuation ……..10,469
Cost of damaged items …………..(490)
NRV of damaged items (300 – 90) 210
Correct inventory valuation 10,189