Question

Feather Company's inventory is recorded at its historical cost of $100,000. The replacement cost currently is $95,000; estimated selling price $102,000; estimated selling cost is $5,000; normal profit is $10,000. The estimated net realizable value of the inventory is:________.
a- $100,000
b- $97,000
c- $87,000
d- $102,000

Answer 1

Answer:

Option B. $97,000

Explanation:

The International Accounting Standard IAS 2 Inventories says that the asset must recorded at lower of:

• Fair Market Value less cost to sell (Net realizable Value)
• Historic Cost

Here

Cost is $100,000

Fair value less cost to sell = $102,000 - $5,000 = $97,000

Here the lower value is $97,000 so the right answer is option B.

Answer 2

Answer:

B. $97000

Explanation:

Given that

Estimated selling price = 102000

Estimated selling cost = 5000

Recall that

The net realizable value which is NRV

= Estimated selling price - estimated selling cost

Thus,

NRV = 102,000 - 5000

= 97000

Therefore, the estimated net realizable value is $97000.

Note, the other parameters listed are not used in estimating NRV.