A Co. showed the following values for its inventory as of the end of its fiscal year: Historical cost $100,000 Current replacement cost 70,000 Net realizable value [NRV] 90,000 NRV less a normal profit margin 80,000 Fair value 96,000 What amount should the company report for inventory on its balance sheet

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Business

Korbin Velasquez

27 January, 06:29

A Co. showed the following values for its inventory as of the end of its fiscal year: Historical cost $100,000 Current replacement cost 70,000 Net realizable value [NRV] 90,000 NRV less a normal profit margin 80,000 Fair value 96,000 What amount should the company report for inventory on its balance sheet

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Alden Oconnor · Answer 1

The value of the inventory is $90,000, NRV

Explanation:

According to International Financial Reporting Standard, specifically IAS 2, inventories should be valued at the lower of cost or net realizable value.

In this scenario net realizable of $90,000 is lower than cost of $100,000, hence the inventory is recorded in the balance sheet at $90,000.

The necessary entries to bring inventory value to $90,000 is by crediting inventory $10,000 with a corresponding debit entry posted to statement of profit or loss (income statement)