ACCA Applied Knowledge · Financial Accounting · Inventories
Kestrel Co has inventory item X at a cost of $12,000. Its selling price is $15,000, and selling costs of $3,800 will be incurred to sell it. What is the amount at which X should be included in inventory, and what adjustment is needed?
The item should be valued at $11,200, its net realisable value, because that is below its $12,000 cost. IAS 2 requires the lower of cost and NRV, so a write-down of $800 is charged to cost of sales.
- A$12,000; no adjustment needed
- B$11,200; write down by $800 through cost of salesCorrect
- C$15,000; write up by $3,000
- D$11,200; write down by $3,800 through cost of sales
Explanation
Net realisable value is $15,000 - $3,800 = $11,200, which is lower than cost of $12,000. IAS 2 requires the lower of cost and NRV, so inventory is written down by $800. Option 4 deducts the entire selling cost instead of comparing NRV with cost.
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