SLR Corporation has 2,600 units of each of its two products in its year-end inve
ID: 342284 • Letter: S
Question
SLR Corporation has 2,600 units of each of its two products in its year-end inventory. Per unit data for each of the products are as follows:
Determine the carrying value of SLR’s inventory assuming that the lower of cost or net realizable value (LCNRV) rule is applied to individual products. What is the before-tax income effect of the LCNRV adjustment?
Determine the carrying value of SLR’s inventory assuming that the lower of cost or net realizable value (LCNRV) rule is applied to individual products
Per Unit Inventory Value
What is the before-tax income effect of the LCNRV adjustment?
Explanation / Answer
Solution :
The inventory must be writtern down to market subsequent to acquisition if its utility is no longer as great as its cost. the difference shoule be recognised as a loss in the current period.
The lower of cost to market rule is applicable to goods that would be sold in the ordinary course of business.
Market is the current cost to replace inventory . Market should not exceed a ceiling equal to net realizable value (NRV). NRV is the estimated selling price minues costs of disposal/other costs to sell.
Hence, the below tabel shows the calculations :
Product Cost NRV Per unit inventory Value Unit Total Cost lower of cost or NRV 1 82 138 82 2,600 213,200 213,200 2 50 49 49 2,600 130,000 127,400 Total Cost 343,200 340,600 Inventory Value 340,600 Before tax income effect (2,600) ( the cost of prodcut 2 was reduced from 50 to 49 thereby causing reduction of income to the tune of 2,600 )Related Questions
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