ExpertMedium2 marksMultiple Choice
ACCA · Question 11 · Inventory Valuation
TechNova holds 1,000 units of a specialized microchip in inventory. The chips cost $50 each to manufacture. Due to a recent technological advancement, these chips can now only be sold for $45 each. To sell them, TechNova must incur packaging and delivery costs of $3 per unit. At what total value should this inventory be stated in the financial statements according to IAS 2?
TechNova holds 1,000 units of a specialized microchip in inventory. The chips cost $50 each to manufacture. Due to a recent technological advancement, these chips can now only be sold for $45 each. To sell them, TechNova must incur packaging and delivery costs of $3 per unit. At what total value should this inventory be stated in the financial statements according to IAS 2?
Answer options:
A.
$50,000
B.
$45,000
C.
$42,000
D.
$48,000
How to approach this question
Calculate Net Realizable Value (NRV) per unit, compare it to Cost per unit, select the lower figure, and multiply by the number of units.
Full Answer
C.$42,000✓ Correct
According to IAS 2 Inventories, inventory must be measured at the lower of cost and Net Realizable Value (NRV). Cost = $50 per unit. NRV = Selling price ($45) - Costs to sell ($3) = $42 per unit. Since NRV ($42) is lower than Cost ($50), the inventory is valued at $42 per unit. Total value = 1,000 units × $42 = $42,000.
Common mistakes
Forgetting to deduct the selling costs from the selling price to find NRV, or valuing at cost despite NRV being lower.
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