ExpertMedium2 marksMultiple Choice
ACCA · Question 24 · Inventories
SECTION B - CASE 2: BioHarvest Agri
BioHarvest Agri Co operates commercial vineyards. The year-end is 30 September 20X6.
By 30 September 20X6, BioHarvest had processed some of the harvested grapes into wine. The cost of the wine inventory (including the initial fair value of the grapes and processing costs) is $120,000. The expected selling price of this wine is $150,000. However, BioHarvest must spend $15,000 on bottling and $20,000 on marketing and distribution to sell the wine.
At what value should the wine inventory be stated in the Statement of Financial Position at 30 September 20X6?
SECTION B - CASE 2: BioHarvest Agri
BioHarvest Agri Co operates commercial vineyards. The year-end is 30 September 20X6.
By 30 September 20X6, BioHarvest had processed some of the harvested grapes into wine. The cost of the wine inventory (including the initial fair value of the grapes and processing costs) is $120,000. The expected selling price of this wine is $150,000. However, BioHarvest must spend $15,000 on bottling and $20,000 on marketing and distribution to sell the wine.
At what value should the wine inventory be stated in the Statement of Financial Position at 30 September 20X6?
Answer options:
A.
$120,000
B.
$150,000
C.
$135,000
D.
$115,000
How to approach this question
1. Identify Cost. 2. Calculate Net Realizable Value (NRV) = Estimated selling price - Estimated costs of completion - Estimated costs necessary to make the sale. 3. Choose the lower of Cost and NRV.
Full Answer
D.$115,000✓ Correct
Under IAS 2, inventory is measured at the lower of cost and net realizable value (NRV). Cost is $120,000. NRV is the estimated selling price ($150,000) less estimated costs of completion ($15,000) and estimated costs to sell ($20,000), which equals $115,000. Since NRV ($115,000) is lower than cost ($120,000), the inventory must be written down to $115,000.
Common mistakes
Forgetting to deduct the marketing and distribution costs when calculating NRV.
Practice the full ACCA FR — Financial Reporting Practice Exam 1
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