Inventory valuation and NRV ( video below)

You are preparing the financial statements for a business. The cost of the items in closing inventory is $10,469. This includes some items which cost $490 and which were damaged in transit. You have estimated that it will cost $90 to repair the items, and they can then be sold for $300.

What is the correct inventory valuation for inclusion in the financial statements?

Answer

Inventories are measured at the lower of cost and net realisable value (NRV).

Net realisable value = estimated selling price in the ordinary course of business – the estimated costs of completion – the estimated costs necessary to make the sale

$

Original inventory valuation              10,469

Cost of damaged items                        (490)

NRV of damaged items (300 – 90)     210

Correct inventory valuation              10,189 

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