Review the following information related to NEC Enterprises. Then complete quest

Question

Review the following information related to NEC Enterprises. Then complete question 6(a) and (b) below. NEC Enterprises uses the lower-of-cost-or-net-realizable-value (LCNRV) method, on an individual-item basis, in pricing its inventory items. The inventory at 31, December 2013, consisted of products A, B, and C. Relevant data for these products appear below. Item A Item B Item C Estimated selling price $120 $90 $90 Acquisition cost 75 80 36 Replacement cost 78 33 32 Cost to complete 30 10 30 Selling costs 10 20 20 Normal profit margin 10 5 5 (a)Using the LCNRV rule under IFRS, determine the proper unit value for statement of financial position (balance sheet) purposes at December 31, 2013, for each of the items above. (b) Using the LCM rule under US GAAP, determine the proper unit value for statement of financial position (balance sheet) purposes at December 31, 2013, for each of the items above.

Explanation / Answer

A B C Selling price 120 90 90 Acquistion cost 75 80 36 Replacment cost 78 33 32 Cost to complete 30 10 30 profit margin 10 5 5 NRV 90 80 60 NRV Selling price less cost to complete A Cost 75 80 36 B NRV 90 80 60 Lower of A and B 75 80 36 A Cost 75 80 36 B NRV- Ceiling 90 80 60 Less; profit 10 5 5 NRV Normal profit Floor 80 75 55 Cost 75 80 36 NRV (Ceiling) 90 80 60 Replacment cost 78 33 32 NRV -floor 80 75 55 Product A Cost Market 75 90 NRV (Ceiling) 78 Replacment cost 80 NRV -floor 78 Will be used Product B Cost Market 80 80 NRV (Ceiling) 33 Replacment cost 75 NRV -floor 33 Will be used Product C Cost Market 36 60 NRV (Ceiling) 32 Replacment cost 55 NRV -floor 32 Will be used LCM is the lower of cost or replacement cost, with the replacement cost being no higher than NRV and no lower than NRV minus the normal profit.

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