Inventory appears in Statement of financial position ( video below)

The closing inventory of A amounted to $29,100 excluding the following two inventory lines:

1. 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.
2. 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

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

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