The December 31, 2016 inventory of ABC Company consisted of four products, for w

Question

The December 31, 2016 inventory of ABC Company consisted of four products, for which certain information is provided below. (2 marks)

                                                        Estimated                Expected           Estimated

Product      Original Cost            Completion Cost        Selling Price      Cost to sell

   A                        $25                          $6                            $40                      $4

   B                        $42                        $12                            $58                      $8

   C                      $120                        $25                          $150                    $15

   D                        $18                          $3                            $26                      $2

Using the lower-of-cost-or-net realizable value approach applied on an individual-item basis, compute the inventory valuation that should be reported for each product on December 31, 2016.

Explanation / Answer

Estimated   

Product      Original Cost            Completion Cost Total cost Net selling price(Selling price-cost to sell)

   A                        $25                          $6 $31 =(40-4)=$36

   B                        $42                        $12 $54 =(58-8)=$50   

   C                      $120                        $25 $145 =(150-15)=$135

   D                        $18                          $3 $21 =(26-2) =$24

So, inventory will be valued at lower of cost and net realisable value

Product Toal Cost Net Realisable value Inventory to be valued

A $31 $36 $31

B $54 $50 $50

C $145 $135 $135

D $21 $24 $21

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