Question

In c Do you agree, and why or why not?

Answer 1

1. Yes, It is to be agreed that we should use a different method because it is not a fair accounting practise and presentation of inventory as per the required standards on the Valuation of Inventory.

As this will impact the company closing stock valuation and it may results in the overvaluation of the company profit by valuing the inventory by more than the fair value if it is recorded the inventory at cost.

2. Yes, a change is inventory valuation will increase the net income on its financial statements as if the closing stock of inventory is valued at a higher price than the fair value to be accounted for, then the assets of the company is reported higher value, Gross profit and Net profit is also overstated, Cost of the company is understated.

3. The inventory should be valued at cost when

• the market value of the inventory (i.e., the Net Realisable Value ) of an inventory is less than the cost, then such inventory should be valued at the net realisable value
• In case if the inventory became obsolete which had no realisable value and no market demand then the inventory should be written off.