Question

Mini-Case #1 Johanson Co. purchased inventory for $100. At the end of the fiscal period, the inventory is unsold. Because of a reduction in demand, Johanson expects to sell the inventory for $90. The normal profit margin is $10. If Johanson were to replace the inventory, they would have to pay $77. How much is "market value" as required und the “lower of cost or market" standard? Justify your answer using the ASC and case facts. Follow the requirements in the “Arguments Guidance" and "Case Guidance" files.

Answer 1

The market value as required under the "Lower of cost or makret" Standard is $77.

Lets take an figures given in the question to understand in a better way.

Purchase price of the inventory is $100

Expected selling price is $90

But the value in the market for the same product is $77.

Hence is he goes to the market to buy same product it would cost him $77.

Therefore inventory should be valued at $77 recognising loss of $ 23.