CA Foundation · Accounting · Inventories
Sharma Traders holds 500 units of an item at 31 March. Cost is ₹120 per unit. The normal selling price is ₹150 per unit, selling expenses are ₹10 per unit. Because of a new model, the selling price has fallen to ₹125 per unit, with selling expenses unchanged. At what value should the closing stock of this item be shown?
Closing stock should be ₹57,500. Under AS 2 inventory is valued at the lower of cost and net realisable value. NRV is ₹125 less ₹10 selling expense, which is ₹115 per unit, lower than the ₹120 cost, so 500 units are valued at ₹115 each.
- A₹60,000
- B₹57,500Correct
- C₹75,000
- D₹62,500
Explanation
Inventory is valued at lower of cost and net realisable value. NRV = 125 − 10 = ₹115 per unit, which is below cost of ₹120. Value = 500 × 115 = ₹57,500. ₹60,000 ignores the selling expenses, and ₹62,500 uses selling price without deducting expenses.
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