How to approach it
- Fix quantities: physical units, less any units found missing (abnormal loss), split into good and damaged.
- Cost per unit under FIFO: closing units come from the latest production.
- NRV for good units: current selling price less proportional selling costs.
- Damaged units: compare NRV as-is with NRV after repair and use the higher.
- Value each group at the lower of cost and NRV, then total.
Key rules to apply
- IAS 2 / costing: inventory at the lower of cost and NRV, item by item or group by group.
- Use selling prices in force at the reporting date.
- Missing units are written off as abnormal loss, not valued.
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Using last year's prices for NRV (examiners' point).
- Using the damaged as-is price in the repaired-sale option.
- Leaving missing units in the count.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q6 without copying it.
Original practice question
Damaged units: repair or sell as-is
Records show 10,000 units at FIFO cost Rs 4,000 each, but 150 are missing (abnormal). The 9,850 on hand include 200 damaged units. From the reporting date the price is Rs 5,000. Selling costs are 4% of sales value. Damaged units sell for Rs 3,200 as they are, or for full price after Rs 900 of repairs.
Required: Value closing inventory.
Worked solution
| Group | NRV per unit | Value |
|---|---|---|
| Good: 5,000 × 96% = 4,800 > cost | 4,800 | 9,650 × 4,000 = Rs 38,600,000 |
| Damaged as-is: 3,200 × 96% | 3,072 | |
| Damaged repaired: 4,800 − 900 | 3,900 | 200 × 3,900 = Rs 780,000 |
| Closing inventory | Rs 39,380,000 |
Answer: Rs 39.38m; the 150 missing units (Rs 0.6m) go to profit or loss as abnormal loss.