Question

18. inventory CHAPTER 9 Inventories: Additional Issues 499 F9-6 lower of cost or This is a variation of E 9-3, modified to focus on the lower of cost or market.] Tatum Company has four products in its inventory. Information about the December 31, 2018, inventory is as follows: market .LO9-1 Product Total Cost $120,000 90,000 60,000 30,000 101 102 103 Total Replacement Cost $100,000 85,000 40,000 28.000 Total Net Realizable Value $100,000 110,000 50,000 50,000 · 104 of cost. et realiz- The normal gross profit percentage is 25% of total cost. Required: 1. Determine the carrying value of inventory at December 31, 2018, assuming the lower of cost or market (LCM) rule is applied to individual products. 2. Assuming that inventory write-downs are common for Tatum Company, record any necessary year-end adjusting entry. ry is as

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Answer 1

This problem is based on IAS 2 Inventories.

According to IAS 2 Inventories are required to be stated at lower of the cost and net realizable value.

product	total cost	NRV	Carrying Value at year end	Adjustment
101	120000	100000	100000	-20000
102	90000	110000	90000	-
103	60000	50000	50000	-10000
104	30000	50000	30000	-

Adjustment entry at the year end

Profit and loss A/c Dr.

Profit and loss A/c Dr.	30000
Product 101 Cr.		20000
Product 103 Cr.		10000

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