Paper 3 · Inventory valuation

Goods held in inventory had a cost of $7 500. They were damaged and could only be sold for$ 1 500 after incurring repair costs of $150. At what amount should these goods be included in inventory, applying the lower of cost and net realisable value rule?

Model answer

$1350

Also accepted: 1350, $1 350, 1 350, $1,350, 1,350

Explanation: Net realisable value = expected selling price - costs to complete/sell =

1 500 -

150 =

1 350. Since

1 350 is lower than the

7 500 cost, the goods are valued at the net realisable value of

1 350.

Derived from ZIMSEC Accounting Paper 3, June 2019, Q3

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