Question

Consider the following data Ending inventory at cost --- $115,000 Ending inventory at replacement cost -----...

Consider the following data

Ending inventory at cost --- $115,000

Ending inventory at replacement cost ----- $119,000

Cost of goods sold (before consideration of LCM rule) --- $165,000  

Which of the following depicts the proper account balance after the application of the LCM rule?

A. Ending inventory balance will be $119,000

B. Ending inventory balance will be $115,000

C. Costs of goods sold will be $161,000

D. Cost of goods sold will be $169,000

Business   Accounting   
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Homework Answers

Answer #1

Answer B is correct.

As per LCM rule inventory cost will be taken at lower of Cost (historical) / Market price /Replacement cost.

Since replacement cost is moe than historical/actual cost , can not be considered. Actual cost is 115000 and replacement cost is 119000, hence $115000 will be considered for inventory valuation purpose.

Figure of "Cost of goods sold " $165000 is before LCM rule, hence its value would not be affected. Further cost of goods is considered at actual cost rather than NRV or any other method.

IAS aslo favours to consider the cost of inventory either at actual cost/ market price (NRV).

Thus ending inventory valuation will be shown at cost $115000.

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