Inventory Write-Down Stiles Corporation uses the FIFO cost flow assumption and is in the process of...

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Inventory Write-Down Stiles Corporation uses the FIFO cost flow assumption and is in the process of applying the LCNRV rule f

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Answer 1

Answer #1

Product A Product B

Historical Cost $81 $96

Replacement cost $71 $98

Estimated cost of disposal $32 $25

Estimated Selling Price $150 $120

Net Realisable Value $118 $95

Profit Margin $45 $36

(150*30/100) (120*30/100)

Net Realisable Value - Profit Margin $73 $59

Product A

The Replacement cost is $71 which is lower than $73, therefore we will consider the value $ 73, it is the market value and the cost of the product A is $ 81. Therefore the value of inventory as per LCNRV Rule will be lower of Rs.73 and $ 81 i.e 73.

Value of Product A= $ 73 per Unit

Product B

Cost of product is $ 96 and elligible NRV is $98, Lower of Cost and NRV is $ 96

The value of Product B is $96.

Note: Net realisable Value =Estimated Selling Price-EstimatedCost of disposal)

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