Question

Costco Medical Supply Co. has determined its year-end inventory on a LIFO basis to be $625,000....

Costco Medical Supply Co. has determined its year-end inventory on a LIFO basis to be $625,000. Information pertaining to that inventory is as follows:

Selling price

$

720,000

Costs to sell

30,000

Normal profit margin

80,000

Replacement cost

600,000

What should be the reported value of inventory?

None of the above

$610,000

$600,000

$625,000

$620,000
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Answer:

As per GAAP, inventory is to be valued at cost or market value whichever is lower.

Given,

Replacement Cost = $600,000

Cost = $625,000

Net Realisable Value = Selling Price - Cost To Sell = $720,000 - $30,000 = $690,000

Maket Value = Net Realisable Value - Normal Profit Margin = $690,000 - $80,000 = $610,000

Cost is greater than Market Value. Therefore, $610,000 should be the reported value

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