At 30 April 2017, Judith had three items of closing inventory that had been valued as follows:

                                    Cost                                        NRV

Product X                  £5,600                                    £5,500

Product Y                  £1,350                                    £1,600

Product Z                   £3,275                                    £2,960

What is the correct value of closing inventory to be included in Judith’s financial statements?

Question

At 30 April 2017, Judith had three items of closing inventory that had been valued as follows:

Cost                                        NRV

Product X                  £5,600                                    £5,500

Product Y                  £1,350                                    £1,600

Product Z                   £3,275                                    £2,960

What is the correct value of closing inventory to be included in Judith’s financial statements?

BlackTom AI · Accepted Answer

We begin by identifying the accounting rule applicable to closing inventory values. Under the lower of cost and net realisable value (NRV) principle, each item should be valued at the lower of its cost or its NRV.

For each product:
- Product X: cost = £5,600, NRV = £5,500. The lower amount is £5,500, so X contributes £5,500 to closing inventory.
- Product Y: cost = £1,350, NRV = £1,600. The lower amount is £1,350, so Y contributes £1,350 to closing inventory.
- Product Z: cost = £3,275, NRV = £2,960. The lower amount is £2,960, so Z contributes £2,960 to closing inventory.

Next, we sum the recoverable amounts for all items to obtain the total closing inventory value:
£5,500 (X) + £1,350 (Y) + £2,960 (Z) = £9,810.

Therefore, the correct closing inventory value to be included in the financial statements is £9,810. This approach aligns with the principle of recognizing potential losses on inventories when NRV falls below cost, ensuring assets are not overstated. The computation demonstrates why X is reduced to £5,500, Y remains at £1,350, and Z is reduced to £2,960, yielding the aggregate of £9,810.

LC Financial Accounting & Accountability 32179 MOCK Class Test (timed)

At 30 April 2017, Judith had three items of closing inventory that had been valued as follows: Cost NRV Product X £5,600 £5,500 Product Y £1,350 £1,600 Product Z £3,275 £2,960 What is the correct value of closing inventory to be included in Judith’s financial statements?

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