Problem 13.20

Lower of cost and net realisable value

Non-GST version

The following information applies to the inventory of Carson's Camera Store as at 30 June 2019.

Required

(a) Calculate the ending inventory value as at 30 June 2019, applying the lower of cost and net realisable value rule to:

i. individual inventory items

ii. major categories of cameras and video equipment

iii. total inventory.

(b) What effect does application of the lower of cost and net realisable rule have on the financial statements of the business?

(c) Assume that at the end of the next financial year, 12 units of model A-4 are still on hand and the net realisable value is $80 per unit. How would this increase in net realisable value affect the inventory value of the 12 units.

(d) How would the increase in net realisable value in requirement C be treated in the accounting records?