Lower of Cost or Market The following information is taken from Aden Company\'s
ID: 2421021 • Letter: L
Question
Lower of Cost or Market
The following information is taken from Aden Company's records:
What is the correct inventory value if the company applies the lower of cost or market to each of the following? When required, round your answers to the nearest cent.
1. Individual items:
Product A $ 480
Product B 375
Product C 750
Product D 640
Product E 1,968
Total inventory value $ 4,213
2. Groups of items:
Group 1 $ 867.50
Group 2 1,400
Group 3 1,968
Total inventory value $ 4,235.50
3. The inventory as a whole:
Total inventory value $ ? ( need help with this one, is not 4,213)
Explanation / Answer
Answer: W.No-1 : Valuation as Per Individual product wise cost or market value which ever is lower Product No of Units Value Per Unit Total Value A 600 0.8 480 B 250 1.5 375 C 150 5 750 D 100 6.4 640 E 80 24.6 1968 4213 W.No-2 : Valuation as Per Group wise Group Product Toatl Cost Total Market Value Valuation (Cost or Market value which ever is lower) Group-1 A 600 480 B 375 387.5 975 867.5 867.5 Group-2 C 750 787.5 D 650 640 1400 1427.5 1400 Group-3 E 2000 1968 1968 TOTAL 4235.5 Conclusion: Group Product W.No-1 (Item wise) W. No-2 (Group wise) Group-1 A 480 480 B 375 387.5 855 867.5 Group-2 C 750 750 D 640 650 1390 1400 Group-3 E 1968 1968 TOTAL 4213 4235.5 Total Value of inventory (W.no-1 or W.no-2 which ever is Lower) = 4213 $ Explanation : Comparison between net realizable value and cost of inventory The comparison between cost and net realizable value should be made on item-by-item basis. (In some cases, group of items-by-group of item basis) For Example: Item A 100(cost) 90(nrv) 90(Inventory value as per IAS-2) Item B 100(cost) 115(nrv) 100(Inventory value as per IAS-2) Total 200(cost) 205(nrv) 200 190(Inventory value as per IAS-2) Raw material valuation If the finished goods to which raw material is applied, is sold at profit, RAW MATERIAL is valued at cost irrespective of its NRV level being lower to its costs.
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