Question:
The use of the lower of cost or net realizable value (LCNRV) method to value inventory for reporting purposes is a departure from the accounting principle of:
A) Historical cost.
B) Matching.
C) Going concern.
D) Conservatism.
Answer:
The Right answer is A) Historical Cost.
Explanation:
Inventories are recorded at their cost. If inventory declines in value below its original cost, a major departure from the historical cost principle occurs.
Whatever the reason for a decline-damage, physical deterioration, obsolesce, changes in price levels, or other causes, a company should write down the inventory to Lower-of-Cost or Net Realizable Value (LCNRV) to report this loss.
A company abandons the historical cost principle when the future utility (revenue-producing ability) of the asset drops below its original cost.
Net Realizable Value refers to the net amount that a company expects to realize from the sale of inventory. Specifically, net realizable value is the estimated selling price in the normal course of business minus estimated costs to make a sale.
Example
Inventory Value - Unfinished $2,000
Less: Estimated Cost of Completion $ 50
Estimated Cost to sell <u>200</u> <u> 250</u>
<u>Net Realizable Value 750</u>
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Cheers!
According to the National Center for Educational statistics, approximately 90-99% of children age 14-15 are enrolled in school (this does not measure the number that actually attend school).
Answer:
Cost of ending inventory =$15,000
Explanation:
Given:
Direct material = 90,000
beginning Inventory = 20,000
Completed Inventory = 60,000
Ending Inventory = 10,000
Total cost of direct materials = $135,000
Computation:
Cost of ending inventory = Ending Inventory × Per Item cost
Cost of ending inventory = 10,000 × $1.50
Cost of ending inventory =$15,000
Working Note:
Cost per unit = Cost of direct materials / Units in direct materials
Cost per unit = $135,000 / 90,000
Cost per unit = $1.50
