As at its fiscal year end on June 30, 2013, Kool Jewels Inc. (KJI) held jeweller
ID: 2381177 • Letter: A
Question
As at its fiscal year end on June 30, 2013, Kool Jewels Inc. (KJI) held jewellery inventory which consisted of the following items:
Description
At Cost
Net Realizable Value
Watches
$2,550,000
$2,150,000
Rings
$5,000,000
$8,000,000
Necklaces
$1,700,000
$2,200,000
Bracelets
$600,000
$450,000
Required:
i) What is meant by the lower of cost and net realizable value method of inventory valuation? Briefly explain.
ii) Given the above information, what value would you place on the inventory of jewellery held by KJI on June 30, 2013?
question 3
Without regard to Part C above, assume the inventory held by KJI on July 1, 2013 had a carrying amount of $9,000,000.
On December 1, 2013, thieves stole all the jewellery on hand. Records of the inventory on hand at that date do not exist as KJI uses a periodic inventory system. The following financial information is available for the period covering July 1, 2013 to November 30, 2013.
Inventory Purchased on account $8,000,000
Inventory Purchased for cash $2,000,000
Sales $16,000,000
Average gross profit margin on sales 75%
Description
At Cost
Net Realizable Value
Watches
$2,550,000
$2,150,000
Rings
$5,000,000
$8,000,000
Necklaces
$1,700,000
$2,200,000
Bracelets
$600,000
$450,000
Explanation / Answer
i) This rule states that the inventory should be measured at the lower of:
Cost; or
Net Realisable Value.
Cost is the cost incurred to purchase or produce the inventory. Net realisable value is the current market price of inventory less selling expenses.
ii) The value will be placed (on the basis of lower of cost or NRV) as below:
a) Watches: $2,150,000
b) Rings: $5,000,000
c) Necklaces: $1,700,000
d) Bracelets: $450,000
Total value = $9,300,000
iii) Balance of inventory on Dec. 1 = Opening balance of inventory as on July 1 + Inventory purchased on account + Inventory purchased for cash
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.