A sole trader evaluated three categories of unsold goods at the end of the accounting year as follows: | Inventory Category | Cost () | Estimated Selling Price () | Selling Expenses ($) | | :--- | :--- | :--- | :--- | | Category X | 12,000 | 15,000 | 1,000 | | Category Y | 18,000 | 16,000 | 1,500 |

A sole trader evaluated three categories of unsold goods at the end of the accounting year… — JAMB UTME

A sole trader evaluated three categories of unsold goods at the end of the accounting year as follows:

Inventory Category	Cost ($)	Estimated Selling Price ($)	Selling Expenses ($)
Category X	12,000	15,000	1,000
Category Y	18,000	16,000	1,500
Category Z	25,000	30,000	2,000

In accordance with the prudence concept, what is the total value of closing inventory to be credited to the Trading Account?

Cevap: 51500 $

Cevap

The total value of closing inventory to be credited to the Trading Account is $51,500.

Closing inventory must be valued at the lower of cost and net realizable value (NRV) for each separate category. For Category X, cost (

12,000) is lower than NRV (

14,000). For Category Y, NRV (

14,500) is lower than cost (

18,000). For Category Z, cost (

25,000) is lower than NRV (

28,000). Summing these lower values (

12,000 +

14,500 +

25,000) yields

51,500.

Adım Adım Çözüm

Calculate the Net Realizable Value (NRV) for each inventory category.

Category X NRV =

15,000 -

1,000 =

14,000; Category Y NRV =

16,000 -

1,500 =

14,500; Category Z NRV =

30,000 -

2,000 = $28,000.

Net Realizable Value represents the expected net cash receivable from selling the inventory after deducting estimated costs to complete and sell.

Determine the lower of Cost and NRV for each category individually.

Category X lower value =

12,000 (Cost); Category Y lower value =

14,500 (NRV); Category Z lower value = $25,000 (Cost).

According to the accounting principle of prudence (and IAS 2), inventory must be valued at the lower of cost and net realizable value evaluated line by line.

Sum the selected valuation amounts to obtain the total closing inventory value.

Total Closing Inventory =

12,000 +

14,500 +

25,000 =

51,500.

The total closing inventory reported in final accounts is the sum of the individual lower values.

Anahtar Kavram

Valuation of inventory at the lower of cost and net realizable value under the prudence concept

Soru

Cevap

Adım Adım Çözüm

Anahtar Kavram

Sık Yapılan Hatalar

Konular

Bu konudan daha fazla soru