Question

At the end of the year, Ian Co. determined its inventory to be $258,000 on a FIFO (first in, first out) basis. The current replacement cost of this inventory was $230,000. Ian estimates that it could sell the inventory for $275,000 at a disposal cost of $14,000. If Ian's normal profit margin for its inventory was $10,000, what would be its net carrying value?

Answer 1

Value of closing inventory = $230,000

Step-by-step explanation:

Closing inventory as assessed = $258,000 based on FIFO

Replacement cost of this closing inventory = $230,000

Selling Price of this inventory = $275,000

For which disposal cost = $14,000

Net sales revenue from this inventory = $275,000 - $14,000 = $261,000

Less: Regular operating margin = $10,000

Value as per sales = $261,000 - $10,000 = $251,000

Closing inventory as per IFRS is to be valued at cost or Net Realizable Value, or Replacement Value whichever is less:

Here, least value = $230,000 which is replacement value.

Final Answer

Value of closing inventory = $230,000