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21 January, 09:07

The following inventory information was taken from the records of Kleinfeld Inc.: Historical cost $12,000 Replacement cost $7,000 Expected selling Price $9,000 Expected selling cost $500 Normal profit margin 50% of price Assume that subsequent to your adjustment the expected selling price increases to $13,000 (all the rest of the facts are the same). What adjustment to inventory should be made under IAS 2 after this event? Question 37 options: Inventory should be increased (debited) by $3,500. Inventory should be increased (debited) by $4,000. No adjustment should be made to inventory once it is written down. Inventory should be increased (debited) by $1,000.

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  1. 21 January, 12:12
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    Inventory should be increased (debited) by $3,500.

    Explanation:

    According to the IAS 2, the inventory value should be lower of historical cost or net realizable value

    The historical cost is $12,000

    And, the net realizable value is

    = $9,000 - $500

    = $8,500

    Since as we can see the lower value is $8,500 but due to increase in realizable value, the historical cost would remain the same i. e $12,000

    So the inventory should be increased or debited by $3,500 i. e

    = $12,000 - $8,500

    = $3,500
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