Question

1. ross electronics has one product in its ending inventory. per unit data consist of the following: cost $20; replacement cost $18; selling price $30; selling costs $4. the normal profit margin is 30% of the selling price. unit value means value of each piece of inventory. 1. what unit value should ross use when applying the lower of cost or net realizable value rule to ending inventory?

Answer 1

According to the given information, Net realization value rule to ending inventory is $17

Net realization value = selling price - selling cost

                                  = $30 - $4

                                  = $26

Profit margin = 30% of selling price

                     = 0.3 × $30

                     = $9

NRV - profit margin = $26  - $9

                                = $17

• An asset's value is measured by its net realizable value (NRV), which is the sum of the proceeds from a sale less any selling expenses.
• NRV is a conservative method that accountants use to make sure an asset's value isn't overstated.
• It is a typical technique for assessing inventories and accounts receivable, and it is also used in cost accounting.
• NRV has drawbacks, including being a more complex method of evaluating asset values and the possibility that management assumptions won't be realized.
• Both generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) use NRV.

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