Question

Ivanhoe Wig Shoppe carries a number of wigs that are made specifically for people who require them while undergoing medical treatment. They use a perpetual inventory system and the FIFO cost formula for valuing inventory. The following information is available regarding the inventory on hand at year end, December 31. Unit Net Realizable Туpes: Value Units Unit Cost $131 $129 Marilyn 13 Farrah 10 213 228 Jane 10 61 93 J-Lo 8 203 210 Cpt. Kirk 11 162 110 X Your answer is incorrect. Assuming lvanhoe values each type of wig separately, determine the lower of cost and net realizable value of the ending inventory. Lower of cost and net realizable value 716

Answer 1

Requirement 1: Compute net realizable value of ending inventory as follows

Inventory Types	Historical Cost	NRV	LCNRV
Marilyn	$1,703	$1,677	$1,677
Farrah	$2,130	$2,280	$2,130
Jane	$610	$930	$610
J-Lo	$1,624	$1,680	$1,624
Cpt.Kirk	$1,782	$1,210	$1,210
Lower of cost and net realizable value of inventory (LCNRV)			$7,251

Note: The amount of inventories at historical cost

Inventory Types	Units	Unit Cost	Amount
	(a)	(b)	(a) × (b)
Marilyn	13	$131	$1,703
Farrah	10	$213	$2,130
Jane	10	$61	$610
J-Lo	8	$203	$1,624
Cpt.Kirk	11	$162	$1,782
Total historical cost of inventories			$7,849

The amount of inventories at net realizable value

Inventory Types	Units	NRV	Amount
	(c)	(d)	(c) × (d)
Marilyn	13	$129	$1,677
Farrah	10	$228	$2,280
Jane	10	$93	$930
J-Lo	8	$210	$1,680
Cpt.Kirk	11	$110	$1,210
Total net realizable value			$7,777

Requirement 2: Prepare the following journal entry for the recovery in net realizable value under IFRS

Date	Account Title and Explanation	Debit	Credit
Jan. 31	Merchandise Inventory($7,849 − $7,251)	598
	Cost of Goods Sold		598
	To record recovery in inventory value

Note: If the company follows U.S GAAP no journal entry is required as no reversals are permitted under U.S. GAAP.

Prepare the following journal entry to record the decline in inventory value

Date	Account Title and Explanation	Debit	Credit
Dec 31	Cost of Goods Sold ($7,849 − $7,251)	$598
	Merchandise Inventory		$598
	To record decline in inventory value

Requirement 3: Compute the value of inventory to be reported as follows:

The company would report $7,777 as the value of inventory in its balance sheet because it is lower when compared to historical cost of $7,849.

Inventory Types	Historical Cost	NRV
Marilyn	$1,703	$1,677
Farrah	$2,130	$2,280
Jane	$610	$930
J-Lo	$1,624	$1,680
Cpt.Kirk	$1,782	$1,210
Total	$7,849	$7,777