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ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income

At the year end, Orion Co counted inventory at cost of $64,000. Included in this figure are 400 units costing $30 each, which are damaged. They can be sold after repair costing $8 per unit, for $34 each, with selling costs of $2 per unit. What is the correct value of closing inventory?

Closing inventory is $61,600. Inventory is valued at the lower of cost and net realisable value. The damaged units have NRV of $24 (34 less 8 repair less 2 selling) against cost of $30, so a $6 per unit write-down on 400 units, $2,400, is deducted.

  1. A$64,000
  2. B$61,600Correct
  3. C$57,600
  4. D$52,000

Explanation

Net realisable value per damaged unit = 34 - 8 - 2 = 24, which is below cost of 30. Write-down = 6 x 400 = 2,400. Inventory = 64,000 - 2,400 = 61,600. Writing down to selling price less only repair would give 26 per unit and a wrong figure.

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