A company applies the lower of cost and net realizable valuation to individual p

Question

A company applies the lower of cost and net realizable valuation to individual products A, B and C and has collected the following data: Selling price: (A) $100, (B) $125 and (C) $80; Cost: (A) $70 (B) $75 (C) $80; and Costs to Sell: (A) $15 (B) $20 and (C) $8. No other information is given. The questions: 1) Determine the inventory book value for Products A, B and C. 2) Determine the inventory book value for products A, B, and C assuming that the company prepares its financial statements according to International Financial Reporting Standards 3) Prepare journal entries to write down inventory for the results in 1) and 2).

Explanation / Answer

  2. Inventory book value for products A, B, and C assuming that the company prepares its financial statements according to International Financial Reporting Standards:

A B C

Cost $70 $75 $80

Net Realisable Value $85 $105 $72

   Book Value $70 $75 $72

(lower of NRV and Cost)

Journal entry:

Loss from decline in value of Inventory Dr.$8

To Inventory $$8

(Being adjustment entry made for lower of cost and NRV)

Note:   Net realisable Value

   A = 100 - 15 =$85

B = 125 - 20 =$105

   C= 80 - 8 = $72

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