Question

(Questions #13-#14 Lower of Cost or NRV):  The following inventory information was taken from the records of Kleinfeld Inc.:

                                    Historical cost                                          $12,000

                                    Replacement cost                                        7,000

                                    Expected selling price                               9,000

                                    Expected selling cost                                    500

                                    Normal profit margin                                    50% of selling price

______   13.      Under IAS 2, what should the balance sheet report for Inventory?

$7,000

$8,500

$7,600

$9,000

None of the Above

Answer 1

As per IAS2, inventory should be reported at lower of cost or net realizable value (NRV) in the balance sheet. Net Realizable value is equal to expected selling price of inventory less expected cost to sell.

Net Realisable Value of the inventory is calculated as follows:-

NRV = Expected Selling Price - Expected Selling Cost

           = $9,000 - $500

            = $8,500

Cost of Inventory = $12,000 (i.e. Historical cost)

Lower of cost of NRV is $8,500 (i.e. NRV).

Therefore, $8,500 should be reported in the Balance Sheet for Inventory.