Question

A company normally sells its product for $20 per unit. however, the selling price has fallen to $15 per unit. this company's current inventory consists of 200 units purchased at $16 per unit. replacement cost has now fallen to $13 per unit. calculate the value of this company's inventory at the lower of cost or market.

Answer 1

Inventory write down to $2,600

Inventory loss of $600

Reason :

According to the generally accepted accounting principles we always record inventory at the lower of market or net realizable value.

We record at Cost of $13/unit which gives us a total closing inventory of

Closing inventory = 13×200 = $2,600, this is the amount that is to be recorded in the balance sheet.

A loss of 16-16=$3/ unit is to be recorded, giving a total loss of 3×200 = $600

This loss can be recorded in the cost of goods sold part when the inventory is actually sold.

Current inventory :

Current Inventory means the subset of Conveyed Inventory that are first quality, ready salable finished goods available for sale as part of the Business for the “Fall 2004” or later collections.

Learn more about Current inventory :

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