In: Accounting
The December 31, 2020 inventory of Ivanhoe Company consisted of
four products, for which certain information is provided
below.
Product | Original Cost | Replacement Cost |
Estimated Disposal Cost |
Expected Selling Price |
Normal Profit on Sales |
||||||||||
A | $29.00 | $27.00 | $5.50 | $42.00 | 25.00% | ||||||||||
B | $41.00 | $39.00 | $9.00 | $49.00 | 20.00% | ||||||||||
C | $148.00 | $143.00 | $22.00 | $185.00 | 20.00% | ||||||||||
D | $20.00 | $14.70 | $5.00 | $26.00 | 20.00% |
Using the lower-of-cost-or-market approach applied on an
individual-item basis, compute the inventory valuation that should
be reported for each product on December 31, 2020.
(Round answers to 2 decimal places, e.g.
52.75.)
Product | ||
A | $ | |
B | $ | |
C | $ | |
D | $ |
Solution
Product | |
A | $ 27.38 |
B | $ 39.00 |
C | $ 143.00 |
D | $ 16.80 |
Working
Product | Cost | Replacement cost | NRV | NRV-NP | Market | Per unit Inventory Value |
A | $ 29.00 | $ 27.00 | $ 36.50 | $ 27.38 | $ 27.38 | $ 27.38 |
B | $ 41.00 | $ 39.00 | $ 40.00 | $ 32.00 | $ 39.00 | $ 39.00 |
C | $ 148.00 | $ 143.00 | $ 163.00 | $ 130.40 | $ 143.00 | $ 143.00 |
D | $ 20.00 | $ 14.70 | $ 21.00 | $ 16.80 | $ 16.80 | $ 16.80 |
.
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 | NRV minus Normal Profits |