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    Question

    S, an entity had 500 units of product X at 30 June 2015.

    The product had been purchased at a cost of $18 per unit and normally sells for $24 per unit. Recently, product X started to deteriorate but can still be sold for $24 per unit, provided some rectification work is undertaken at a cost of $3 per unit. What is the value of closing inventory at 30 June 2015.
    A 12000 Correct Answer Incorrect Answer
    B 1500 Correct Answer Incorrect Answer
    C 10500 Correct Answer Incorrect Answer
    D 9000 Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    As per AS – 2, the inventories are to valued at cost or NRV, whichever is lower. Here, cost = 18 and NRV = 24-3=21. So, lower among the two is cost, i.e. 18*500 units.

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