Stock Valuation help

calccalc New MemberPosts: 18Registered
At the year-end a business valued its inventory at cost of £106,800. However, since the valuation was carried out the following matters have come to light, this means that the original inventory valuation may need to be amended:
  • One item of inventory is damaged. The item cost £1,000, repairs costing £250 are necessary to get the item into a saleable condition. The item will then be sold in a ‘clearance’ sale for £750.
  • One item of inventory which cost the business £500 is now obsolete and is to be scrapped.
  • There are 10 items of inventory, the packaging on which has become damaged. The items cost the business £60 each, but they now have to be repackaged; the repackaging will cost £5 per item. The items will then be sold at £100 each.
Based on the information provided above which one of the following figures represents the amended inventory valuation?

Can you tell me how to tackle this question?

Comments

  • CeeJaySixCeeJaySix Well-Known Posts: 645Registered
    Stock should be valued at the lower of cost and net realisable value. NRV is the expected return on sale of the goods less costs to get those goods to a saleable condition. So for example in your first point, the cost is £1000; the NRV is £750 (return on sale) less £250 (cost to get to saleable condition) = £500. The item should therefore be valued at £500, meaning an overall reduction of £500 in the value of inventory (as it is currently included at £1000).

    Does that help? On that basis, can you see what the other two items should be valued at?
  • calccalc New Member Posts: 18Registered
    Thank you! :-)
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