Question

Identifying a Loss in Applying Lower-of-Cost-or-Net Realizable Value

Information related to three products of Adelle Corporation follows.

Product A. Product B Product C

Estimated Selling Price. $56 $70 $78

Original Cost (FIFO) 42 56 50

Cost of Disposal 6 11 8

Cost of Completion 14 0 6

a. What inventory value is reported in the balance sheet for total inventory under the lower-of-cost-or-net realizable value rule assuming each individual item is evaluated?

Product A inventory Value $ _______

Product B Inventory Value $________

Product C inventory Value $_________

Total Inventory Value $____________

b. What inventory value is reported in the balance sheet for total inventory under the lower-of-cost-or-net realizable value rule assuming that the inventory in total is evaluated?

Total Inventory Value $_________

Please show Work!!!!!

Answer 1

Lower of Cost or Net Realizable Value Rule:
Cost = Original Cost

Net Realizable Value = Estimated Selling Price - Cost of Completion - Cost of Disposal

a.

Particulars	A	B	C
Estimated Selling Price	56	70	78
Less: Cost of Completion	14	0	6
Less: Cost of Disposal	6	11	8
Net Realizable Value	36	59	64
Cost	42	56	50
Lower of Cost or NRV	36	56	50
Cost / NRV	NRV	Cost	Cost

Total Inventory Value = 36+56+50

= $142

Particulars	A	B	C	Total
Estimated Selling Price	56	70	78	204
Less: Cost of Completion	14	0	6	20
Less: Cost of Disposal	6	11	8	25
Net Realizable Value				159
Cost	42	56	50	148
Lower of Cost or NRV				148
Cost				148

Total Inventory Value = $148