ACCA Applied Skills · Financial Reporting · Inventories and agriculture
At the year end Kestrel Co holds 1,000 units of product X. Each unit cost $24 to make. The normal selling price is $30 per unit, but a defect means each unit must be reworked at a cost of $4 and then sold with selling costs of $3 per unit, with a revised selling price of $29. At what amount should the 1,000 units be carried in the statement of financial position?
Inventory should be carried at $22,000. Net realisable value per unit is the $29 selling price less $4 rework and $3 selling costs, giving $22, which is below the $24 cost. IAS 2 requires the lower of cost and NRV, applied to 1,000 units.
- A$22,000Correct
- B$24,000
- C$25,000
- D$29,000
Explanation
Net realisable value = 29 - 4 rework - 3 selling = $22 per unit. This is lower than cost of $24, so inventory is stated at $22 x 1,000 = $22,000. Using $24 ignores the write-down; $25 would be selling price less only the rework... actually 29-4 and ignores selling costs.
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