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Difficulty: EasyClosing Stock Valuation and Adjustments

At the end of the accounting period, a trader's physical stock count reveals inventory with a total cost price of N75,000\text{N}75,000. The expected selling price of this inventory is N72,000\text{N}72,000, and the estimated costs to sell are N4,000\text{N}4,000. Calculate the value of closing stock (in Naira) to be credited to the Trading Account in accordance with the prudence concept.

Answer: 68000 NGN

Answer

The closing stock value to be credited to the Trading Account is 68,000 Naira.
Closing stock is valued at the lower of cost and net realizable value (NRV). The cost is 75,000 Naira, and the NRV is calculated as 72,000 Naira minus 4,000 Naira, which equals 68,000 Naira. The lower value of 68,000 Naira is used in the final accounts.

Step-by-Step Solution

1
Calculate the Net Realizable Value (NRV) of the inventory.
\text{NRV} = \text{N}72,000 - \text{N}4,000 = \text{N}68,000
Net Realizable Value is calculated as the estimated selling price minus costs necessary to complete the sale.
2
Determine the valuation of closing stock using the lower of cost and NRV rule.
\min(\text{N}75,000, \text{N}68,000) = \text{N}68,000
Under accounting conventions and the prudence concept, closing stock must be recorded at the lower of cost and net realizable value.

Key Concept

Valuation of Closing Stock at the lower of cost and net realizable value (Prudence Concept)
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Topics

Closing Stock Valuation and Adjustments

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