Question

Simm Co. has determined its December 31 inventory on a LIFO basis to be $400,000. Information pertaining to the inventory follows: Estimated selling price $408,000 Estimated cost of disposal 20,000 Normal profit margin 60,000 Current replacement cost 390,000 At December 31, what should be the amount of Simm’s inventory?

Answer 1

Answer:

LIGO= Lower of Cost of Market

Market needs to be decided. Cost is always original cost. Market can be NRV, replacement cost or NRV less a Normal profit margin.

12/31 inventory: $400,000 cost

NRV= $408,000 - $20,000 selling price disposal cost: = $388,000

NRV less NPM = $388,000 - $60,000 = $328,000

Replacement cost: $390,000

Market is always the middle of:

NRV (ceiling)

Replacement cost

NRV-NPM (floor)

Replacement Cos $390,000

NVR = $388,000

NRV - NPM= $328,000

$388,000 is the middle number or NRV this is market

Compare Market $388,000 to cost $400,000  

NRV of $388,000

LIFO and retail use LCM.