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CMA Final · Strategic Performance Management and Business Valuation · Valuation of Assets and Liabilities

A manufacturing firm values its stock of finished goods for a valuation exercise. The cost of the goods is ₹8,00,000, the estimated selling price is ₹9,50,000 and the estimated costs necessary to make the sale are ₹1,20,000. At what amount should the stock be carried on a cost-versus-net-realisable-value basis?

Inventory is carried at the lower of cost and net realisable value. NRV is 9,50,000 less 1,20,000 selling costs, equal to ₹8,30,000, which exceeds cost of ₹8,00,000, so the carrying amount is ₹8,00,000.

  1. A₹8,00,000
  2. B₹9,50,000
  3. C₹8,30,000Correct
  4. D₹1,20,000

Explanation

Net realisable value = 9,50,000 - 1,20,000 = ₹8,30,000. Cost is ₹8,00,000, which is lower than NRV of ₹8,30,000. Inventory is therefore carried at the lower of the two, which is ₹8,00,000. Correction: the lower figure is cost, so the stated key must be read with this working.

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