ACCA Applied Knowledge · Financial Accounting · Statement of financial position
At the year end Hobbs Co's inventory records show the following for one product: cost $18 per unit, selling price $25 per unit, selling costs $9 per unit to be incurred, 400 units held. At what total amount should this inventory be included in the statement of financial position under IAS 2?
Inventory is valued at the lower of cost and net realisable value. Net realisable value is $25 less $9 selling costs, which is $16 per unit, below the $18 cost. Multiplying $16 by 400 units gives $6,400.
- A$6,400Correct
- B$7,200
- C$10,000
- D$6,800
Explanation
IAS 2 requires the lower of cost and net realisable value. NRV per unit = 25 - 9 = 16, which is lower than cost of 18. So value is 400 x 16 = 6,400. Using cost gives 7,200 and ignoring selling costs gives 10,000 or 400 x 17 type errors.
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