ACCA FA · Chapter 5 · Question 3 of 10
A business holds 40 units of an item that cost $850 each. The items can be sold for $900 each, but each unit first needs modifications costing $70, and a sales commission of 5% of the selling price will be payable. At what value should these items be included in inventory?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $31,400
Explanation
NRV per unit = $900 - $70 - ($900 x 5%) = $900 - $70 - $45 = $785. This is below cost of $850, so inventory is valued at NRV: 40 x $785 = $31,400. Ignoring the commission gives $830 per unit ($33,200), which is still below cost but overstates NRV.
More Inventory (IAS 2) MCQs
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- Q9What is the double entry to record closing inventory at the end of an accounting period?