A Company began operations in 2020 and determined its ending inventory at cost and at a LCNRV
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Question:
A Company began operations in 2020 and determined its ending inventory at cost and at a LCNRV at December 31, 2020, and December 31, 2021. This information is presented below.
Cost Net Realizable Value
31/12/20 SR 520,000 SR 485,000
31/12/21 615,000 585,000
Instructions
(a) Prepare the journal entries required at December 31, 2020, and December 31, 2021, assuming that the inventory is recorded at LCNRV, using a perpetual inventory system and the cost-of-goods-sold method.
(b) Prepare the journal entries required at December 31, 2020, and December 31, 2021, assuming that the inventory is recorded at cost, using a perpetual system and the loss method.
(c) Which of the two methods above provides the higher net income in each year?
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