Question
In: Accounting
Using the lower of cost or market rule, determine the proper unit value for balance sheet...
Using the lower of cost or market rule, determine the proper unit value for balance sheet reporting purposes for each of the inventory items listed below. Do this by a) calculating the designated market value and b) calculating the lower of cost or market.
|
Item |
Replacement Cost |
Ceiling |
Floor |
Designated Market |
Cost |
Lower of cost or market |
|
Books |
$15.00 |
$14.00 |
$12.80 |
$16 |
||
|
Spoons |
17.20 |
19.20 |
17.60 |
16 |
||
|
Plates |
12.80 |
15.20 |
13.60 |
16 |
||
|
Candles |
9.60 |
10.40 |
8.80 |
16 |
||
|
Lamps |
16.80 |
16.40 |
14.80 |
16 |
Solutions
Expert Solution
Solution
| Item | Replacement | Ceiling | Floor | Designated | Cost | Lower of |
| Cost | Market | cost or | ||||
| market | ||||||
| Books | $ 15.00 | $ 14.00 | $ 12.80 | $ 14.00 | $16.00 | $ 14.00 |
| Spoons | $ 17.20 | $ 19.20 | $ 17.60 | $ 17.60 | $16.00 | $ 16.00 |
| Plates | $ 12.80 | $ 15.20 | $ 13.60 | $ 13.60 | $16.00 | $ 13.60 |
| Candles | $ 9.60 | $ 10.40 | $ 8.80 | $ 9.60 | $16.00 | $ 9.60 |
| Lamps | $ 16.80 | $ 16.40 | $ 14.80 | $ 16.40 | $16.00 | $ 16.00 |
Working
If we want to value inventory on the basis of lower of cost or market value then we have to first calculate market value.
To calculate market value an easy method is used in this question. We will take the middle value of the given below values to ascertain market value.
| Replacement value | NRV also known as Cealing | NRV minus Normal Profits also known as Floor |
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78
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Market Value per Unit
(Net Realizable Value)
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253
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47
48
33
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37
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90
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94
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18
178
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23
247
263
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98
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