ExpertMedium2 marksShort Answer
ACCA · Question 06 · Recording transactions and events
Section A
Quantum Computing Ltd has 500 units of a specific microchip in inventory. The original cost was $120 per unit. Due to a recent technological advancement, these chips can now only be sold for $105 per unit. To sell them, Quantum must spend $10 per unit on repackaging and $5 per unit on delivery.
What is the total value of this inventory to be included in the financial statements? (Enter numbers only)
Section A
Quantum Computing Ltd has 500 units of a specific microchip in inventory. The original cost was $120 per unit. Due to a recent technological advancement, these chips can now only be sold for $105 per unit. To sell them, Quantum must spend $10 per unit on repackaging and $5 per unit on delivery.
What is the total value of this inventory to be included in the financial statements? (Enter numbers only)
How to approach this question
Calculate the Net Realizable Value (NRV) per unit: Selling price minus costs to sell. Compare NRV to Cost. Value inventory at the lower of Cost and NRV, then multiply by the number of units.
Full Answer
Cost = $120 per unit. NRV = Selling price ($105) - Repackaging ($10) - Delivery ($5) = $90 per unit. Since NRV ($90) is lower than Cost ($120), inventory is valued at NRV. Total value = 500 units * $90 = $45,000.
Common mistakes
Valuing at cost ($60,000) or forgetting to deduct the delivery costs from the selling price.
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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