Question

Please provide examples of the following:

Several questions on applying Net Realizable Value Rule for inventory, calculate the value of inventory when you are given:

1) Selling Price

2) Cost

3) Cost to Sell

Answer 1

The valuation rule for inventory is value the inventory at cost or net realizable value whichever is less.

Example 1:

Cost = 50000

Selling price = 56000

Cost to sell = 5000

Net realizable value = Selling price - Cost to sell = 56000 - 5000 =51000

So the value of inventory is cost (50000) or net realizable value(51000) whichever is less.

Hence the value of inventory is $50000.

Example 2:

Cost = 60000

Selling price = 58000

Cost to sell = 4000

Net realizable value = Selling price - Cost to sell = 58000 - 4000 =54000

So the value of inventory is cost (60000) or net realizable value(54000) whichever is less.

Hence the value of inventory is $54000.

This is how we calculate when we are given the cost, selling price and cost to sell to value inventory.