A sole trader conducted a physical stock count at the end of the financial year and compiled the following information regarding three product lines of unsold goods:
| Product Line | Total Cost (₦) | Estimated Selling Price (₦) | Selling / Modification Expenses (₦) |
|---|---|---|---|
| Product A | 45,000 | 52,000 | 3,000 |
| Product B | 32,000 | 36,000 | 7,000 |
| Product C | 60,000 | 58,000 | 4,000 |
In accordance with the prudence concept, what is the total value of closing inventory (in ₦) to be presented in the final accounts?
Answer: 128000 ₦
Answer
The total value of closing inventory to be presented in the final accounts is ₦128,000.
Inventory must be valued item by item at the lower of cost and Net Realizable Value (NRV). Product A is valued at its cost of ₦45,000 (lower than NRV of ₦49,000). Product B is written down to its NRV of ₦29,000 (lower than cost of ₦32,000). Product C is written down to its NRV of ₦54,000 (lower than cost of ₦60,000). Summing these lower values yields ₦128,000.
Step-by-Step Solution
Key Concept
Valuation of inventory at the lower of cost and net realizable value (Prudence Concept)