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Chapter 20

Chapter 14

Example 1

Product X is purchased at a cost of $5 per unit and is normally sold to
customers for $9 per unit. Due to changed market conditions, product X can
now only be sold for $6 per unit, subject to incurring packaging and delivery
costs of $1.50 per unit.

Required:

How is inventory valued in this situation?

Example 1: Solution

Determine the lower of cost and net realisable value for product X as follows:

$
Cost 5.00
Net realisable value ($6 – $1.50) 4.50

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