PRC-1 · Chapter 8 · Question 61 of 100
Closing inventory includes an item valued at cost of Rs. 10,000. The net realizable value of this item is Rs. 8,000. The entity uses a perpetual inventory system. What journal entry is required to correct the above error?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Debit Cost of Sales Rs. 2,000 and Credit Inventory Rs. 2,000
Explanation
Inventory must be valued at the lower of cost or NRV. Here, NRV (8,000) is lower than cost (10,000). A write-down of 2,000 is needed. Under perpetual, debit Cost of Sales 2,000 and credit Inventory 2,000.
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