The closing inventory of A amounted to $29,100 excluding the following two inventory lines:
- 450 items which had cost $3 each. All were sold after the reporting period for $2 each, with selling expenses of $110 for the batch.
- 250 different items which had cost $25 each. These items were found to be defective at the end of the reporting period. Rectification work after the statement of financial position amounted to $500, after which they were sold for $30 each, with selling expenses totaling $120.
Which of the following total figures should appear in the statement of financial position of A for inventory?
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
| 29,100 | |
| $ | |
| Line 1: | 790 |
| Line 2: | 6,250 |
| 36,140 |
Note
Line 1
Cost = 450 x 3= 1,350
NRV =450 x $2– $110 = 790 (lower)
Line 2
Cost = 250 x 25= 6,250 (lower)
NRV =250 x $30– $120 – $500 = 6,880