Question

Waltham Distribution Company has determined its December 31, 2020, inventory on a LIFO basis at $200,000. Information pertaining to that inventory follows.
Item Amount
Estimated selling price $208,000
Estimated cost of disposal 10,000
Normal profit margin 6,000
Current replacement cost 190,000
Waltham records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2012, the loss that Ryan should recognize (Under US GAAP) is____.
a. $0.
b. $10,000.
c. $40,000.
d. $50,000.
Waltham records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2012, the loss that Ryan should recognize (Under IFRS) is_____.
a. $0.
b. $10,000.
c. $40,000.
d. $50,000.

Answer 1

Answer:

b. $10,000

Explanation:

Estimated selling price - Estimated cost of disposal = Net realisable value ceiling.

NRV Ceiling = $208,000 - $10,000 = $198,000

Net realisable value Floor = Ceiling - normal profit margin

NRV Floor = $198,000 - $6,000 = $192,000

Market value Current replacement cost = $190,000

Market Loss = NRV ceiling - RC

Market loss = $200,000 - $190,000 = $10,000