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    Question

    A retailer holds seasonal fashion inventory purchased at

    ₹20 lakh. At year-end, expected selling price is ₹25 lakh, but estimated selling costs are ₹7 lakh because of heavy discounting and promotional spend required. The inventory has not yet been marked down. What is the correct carrying amount?
    A ₹25 lakh – selling costs = ₹18 lakh (NRV basis) Correct Answer Incorrect Answer
    B ₹20 lakh (cost, since higher than NRV) Correct Answer Incorrect Answer
    C ₹25 lakh (selling price, since market is higher) Correct Answer Incorrect Answer
    D ₹18 lakh only if impairment testing is performed annually Correct Answer Incorrect Answer
    E ₹22 lakh (average of cost and NRV) Correct Answer Incorrect Answer

    Solution

    Inventories are measured at the lower of cost and NRV. Here cost = ₹20 lakh, NRV = 25 – 7 = ₹18 lakh. Carrying value = ₹18 lakh since NRV is lower.

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