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?