Question
A company purchased 50,000 units of raw material at Rs.2 per unit. At what value will the raw material inventory be recorded in the books of accounts if the market price of the units as at 31 March 2021 is Rs.1.6 per units?
Solution
The inventory is valued at lower of cost of net realisable value. The cost is Rs.2 per unit and realisable value on the closing day of balance sheet is Rs.1.60 per unit. As such, it will be valued at Rs.1.60 per unit. As such, Value of inventory will be = 1.6*50000 = Rs.80,000
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