Bass uses lower-of-cost-or-market to account for the B47AB item in its inventory. The selling price of Bass Group's item B47AB is $26 per unit. Its (historical) cost is $21 and its replacement cost is $22. The disposal cost (cost to sell) of a B47AB is estimated at $2. The normal profit margin on a B47AB is 40% of selling price. At what value per unit should Bass report this item in its inventory, after applying lower-of-cost-or-market?
$20.00 |
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$21.00 |
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$19.00 |
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$13.60 |
Answer- $ 21
Inventory is valued at lower of historical cost or maket
Historical Cost of $ 21 is lower than market replacement cost of $ 22 .
In market , the higher between replacement cost of $ 22 and net realisable value less Net profit of $13 .60 is to be considered , which is replacement cost of $22
Item | Historical Cost | Replacement | NRV ( 26-2) | NRV-NP (24-(40%*26)) |
B47AB | $21 | $22 | $24 | $13.6 |
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