Question

Information related to three products of Adelle Corporation follows. Product A Product B Product C $20 $25 $28 15 20 18 Estimated selling price Original cost (FIFO) Cost of disposal Cost of completion a. What inventory value is reported in the balance sheet for total inventory under the lower-of- cost-or-net realizable value rule assuming each individual item is evaluated? Product A inventory value 13 ♥ Product B inventory value 21 x Product C inventory value 23 x Total inventory value 57 x b. What inventory value is reported in the balance sheet for total inventory under the lower-of- cost-or-net realizable value rule assuming that the inventory in total is evaluated? Total inventory value $ 57

Answer 1

a) Each Individual Item is Evaluated

	Estimated Selling Price (a)	Cost of Disposal (b)	Cost Of Completion (c)	Net Realizable Value a - b - c	Original Cost (FIFO)	Lower of Cost or Net Realizable Value
Product A	$ 20	2	5	13	15	$13
Product B	$ 25	4	0	21	20	$20
Product C	$ 28	3	2	23	18	$18
Total Inventory Value						$51

Net Realizable Value = Estimated Selling Price - Cost of Disposal - Cost of Completion

b) Inventory in Total is Evaluated

Total Estimated Selling Price of Inventory = $ 20+25+28 = $73
Total Cost of Disposal = $ 2+4+3 = $9
Total Cost of Completion = $ 5+0+2 = $7

Net Realizable Value of Inventory in total
         = Total Estimated Selling Price of Inventory - Total Cost of Disposal - Total Cost of Completion
         = $73 - $9 -$7
        = $57

Total Original Cost (FIFO) of Inventory = $ 15 +20 +18 = $53

Lower of Cost or Net Realizable Value Assuming Inventory in Total is Evaluated is $ 53
As it is Lower of two