Question

The following inventory information was taken from the records of Kleinfeld Inc.: Historical cost $12,000 Replacement cost $7,000 Expected selling Price $9,000 Expected selling cost $500 Normal profit margin 50% of price Assume that subsequent to your adjustment the expected selling price increases to $13,000 (all the rest of the facts are the same). What adjustment to inventory should be made under IAS 2 after this event? Question 37 options: Inventory should be increased (debited) by $3,500. Inventory should be increased (debited) by $4,000. No adjustment should be made to inventory once it is written down. Inventory should be increased (debited) by $1,000.

Answer 1

Answer:

Inventory should be increased (debited) by $3,500.

Explanation:

According to the IAS 2, the inventory value should be lower of historical cost or net realizable value

The historical cost is $12,000

And, the net realizable value is

= $9,000 - $500

= $8,500

Since as we can see the lower value is $8,500 but due to increase in  realizable value, the historical cost would remain the same i.e $12,000

So the inventory should be increased or debited by $3,500 i.e

= $12,000 - $8,500

= $3,500