Trimmings plc manufactures textiles which are sold to fashion designers to be made into garments.

Although the majority of textiles in inventory at 31 May 2014 were likely to be sold at prices significantly above the manufacturing cost, the company accountant is concerned about the following product lines:
1 Orange Lace. Manufacturing cost £9,000. This has been on a shelf since 2005. The accountant believes that the only way of selling it would be to shred and bundle it (at a cost of £500) and sell it as industrial cleaning wipes for an anticipated price of £2,000.
2 Saltypigs. Originally printed to meet a high demand for garments linked to a popular television series, there is no further demand for the textile in this country. The textiles cost £16,000, and the only possible source of revenue would be to export the material at a cost of £2,750 for use as sun shades in Chad. Administration costs to handle the sale are estimated at £2,650, and the sale price is estimated at £4,000.

(a) Explain what is meant by the term ‘inventory is valued at the lower of cost and net realisable value’.

(b) Explain, with reasons, how each of the above product lines should be accounted for in the final accounts of Trimmings plc for the year ended 31 May 2014.