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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 the above-mentioned options 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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