Question

oore Company purchased an item for inventory that cost $19 per unit and was priced to sell at $32. It was determined that the cost to sell is $21 per unit. Using the lower of cost or net realizable value rule, what amount should be reported on the balance sheet for inventory?

Answer 1

Answer: Net realizable Value = $11

Explanation:

Net realizable value is the amount that oore company can expect to receive after settling all the costs or expenses necessary for the inventory to be sold. Net realizable value reflects the net market value of the inventory.

oore Company purchased inventory for $19 per unit, that is the cost of the inventory. The selling Price was $32 and cost to sell amounted $21 per unit.

Net realizable value per unit = Price per unit - costs to sell per units

Net realizable value per unit = $32 - $21 = $11.

Inventory in recognised at lower of cost or Net realizable value, cost is $19 per unit and net realizable value is $11 per unit. Net realizable value is lower than Costs of inventory, Therefore the net realizable value per unit is the amount that should be used in valuing inventory. Inventory should be reported at a value of $11 per unit