Closing inventory should be stated ata.Lower of cost and fair value.b.Lower of cost and nominal value.c.Lower of cost and net selling price.d.Lower of cost and net realizable value.
Question
Closing inventory should be stated ata.Lower of cost and fair value.b.Lower of cost and nominal value.c.Lower of cost and net selling price.d.Lower of cost and net realizable value.
Solution
The correct answer is d. Lower of cost and net realizable value.
Here's why:
-
The principle of conservatism in accounting states that when choosing between two solutions, the one that will be least likely to overstate assets and income should be selected.
-
The cost of inventory is the price paid to acquire it.
-
Net realizable value (NRV) is the estimated selling price of goods, minus the cost of their sale or disposal.
-
When the NRV of inventory is less than its cost, the inventory is written down to its NRV.
-
Therefore, inventory should be stated at the lower of cost and net realizable value. This ensures that the inventory is not overstated on the balance sheet.
Similar Questions
An investment property should be measured initially ata.Cost less accumulated impairment losses.b.Cost.c.Fair value less accumulated impairment losses.d.Depreciable cost less accumulated impairment losses.
Explain what lower of cost or market means in regards to reporting merchandise inventory on the balance sheet.Multiple choice question.Inventory should be reported at the original cost paid for it and not what it can be sold for in the market place.Inventory should be reported at the current market value of replacing it when lower than cost.Inventory should be reported at its original cost if the replacement market value (cost) is less.
Inventory turn values that are considered good differ by industry and the type of products being handled.Question 32Answera.FALSEb.TRUE
The cost of inventory should not includea.Purchase price.b.Fixed and variable production overhead.c.Abnormal amounts of wasted materials.d.Import duties and other taxes.
Inventory is reported in the financial statements at Group of answer choicescost.marketthe higher-of-cost-or-marketthe lower-of-cost-or-market
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.