Answer:
1. Debit Cost of goods sold $5,000
Credit Inventory account $5,000
Being entries to write down merchandise inventory to its realizable amount.
2. Revised partial Income statement
Amount
Sales revenue $121,000
Cost of goods sold <u> ($54,000
)</u>
Gross Profit <u> $67,000 </u>
Explanation:
According to IAS 2 inventories, Inventory is initially be recognized at the cost of purchase (which includes the cost of the item and other associated cost such as freight)
Subsequently, inventory would be measured at the lower of cost or net realizable value.
As such, whenever the cost is higher than the net realizable value, the cost of the inventory will be written down by
Since the current replacement cost of ending merchandise inventory is $16000 and the Cost is $21000.
Amount to be written down
= $21000 - $16000
= $5,000
To adjust for this,
Debit Cost of goods sold $5,000
Credit Inventory account $5,000
Total amount in cost of goods sold = $49,000 + $5,000
= $54,000
Revised partial Income statement
Amount
Sales revenue $121,000
Cost of goods sold $54,000
Gross Profit $67,000
