Question
At the end of the year, the c ost of a partly finished
item was Rs. 50 0 . The item can be finished next year by a further expenditure of Rs. 2 00. The finished item can be sold at Rs. 7 50, subject to payment of 6 % brokerage on selling price. What would be the value of closing stock of this item ?Solution
The value of the stock or inventory is the lower of C ost or Net realization value (NRV) : Cost of the given item = Rs.500 Net realization value = Selling price – estimated cost of completion – Brokerage = 750 – 200 – 6 % of 750 = 505 Value of the closing stock will be Rs.500 ( i.e. lower of cost Rs.500 and NRV of Rs.505)
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