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    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 ?  
    A Rs.455 Correct Answer Incorrect Answer
    B Rs.500 Correct Answer Incorrect Answer
    C Rs.505 Correct Answer Incorrect Answer
    D Rs.550 Correct Answer Incorrect Answer
    E Rs.300 Correct Answer Incorrect Answer

    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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