Question

An art gallery has two vases that have not sold for more than two years. Each vase cost $130 and originally retailed for $250. Each vase has a current replacement cost of $90. What will the art gallery report as a loss for the year?
A. $80
B. $180
C. $500
D. $260

Answer 1

Answer: Option (A)

Explanation:

Under the rules of books as per the US GAAP,  we tend to record all the inventory at the cost or the NRV i.e. Net realizable value whichever is less. Here in this particular case,

Cost for each unit = $130

NRV = $90.

Thus inventory will be recorded at $90 each. This means that we've incurred a loss of $40 each ($130 - $90 = $40).

Accordingly, total loss = $40 $\times$ 2 = $80