Skip to content

CS Executive · Corporate Accounting and Financial Management · Introduction to Accounting

A company's closing inventory at cost is Rs 1,80,000 and its estimated selling price is Rs 2,10,000, with estimated selling costs of Rs 40,000. Applying the lower of cost and net realisable value principle for inventories, at what amount should the inventory be carried?

Inventory should be carried at Rs 1,70,000. Net realisable value is the selling price of Rs 2,10,000 less selling costs of Rs 40,000, which is Rs 1,70,000. This is lower than the cost of Rs 1,80,000, so the lower amount is used.

  1. ARs 1,70,000Correct
  2. BRs 1,80,000
  3. CRs 2,10,000
  4. DRs 2,50,000

Explanation

NRV = selling price less estimated costs necessary to make the sale = 2,10,000 - 40,000 = 1,70,000. Cost is 1,80,000. The lower of the two is 1,70,000. Rs 1,80,000 ignores the selling costs, and Rs 2,50,000 wrongly adds them.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Accounting shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to AccountingFree diagnostic mock

More Introduction to Accounting questions