Question

Sandra has the following values of trading stock on hand at 30 June 2019. She wishes to reduce her assessable income for the current year. She provides you with the following stock values:

Market selling value $55,200

Cost using average cost method of valuation $66,500

Replacement value $38,200

Which value should she use to minimise her assessable income?

Select one:

a. None of the above

b. $66,500

c. $55,200

d. $38,200

Answer 1

As the stock is to be valued at the lower of cost or net realizable value therefore if Sandra wants to reduce her assessable income she should value the stock at market selling value which is the net realizable value and by which her income will decrease.

In the given question is the market selling value is lower than the cost therefore the Inventory of the stock on hand should be valued as per market selling value. However replacement value will not be considered in this case as as no profit margin is given in the question.

Therefore Sandra should value stock in hand at $55,200

Therefore the correct option is C