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Net realisable value (NRV) of inventory is the estimated selling price of an inventory item in the ordinary course of business, less any costs expected to incur for completion and sale. It represents the amount that an entity expects to recover from its inventory, ensuring that assets are not overstated on the balance sheet. NRV is crucial for determining the appropriate value of inventory for financial reporting and is used to assess potential losses when inventory values decline.
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Explain with examples two instances when net realisable value may be lower then cost?
Net realizable value (NRV) may be lower than cost when inventory becomes obsolete, such as outdated electronics that can no longer be sold at their original price. Another instance is when market demand decreases significantly; for example, if a farmer harvests crops but faces a surplus in the market, the selling price may drop below the production cost, leading to a lower NRV. In both cases, companies must write down the inventory to reflect its lower value in financial statements.
Should purchase of inventory be reported net of discount and net of vat?
Yes, the purchase of inventory should be reported net of discounts, as these discounts represent reductions in the purchase price that effectively lower the cost of inventory. However, inventory should be reported at its gross amount before VAT, as VAT is typically recoverable and does not form part of the cost of inventory for accounting purposes. Thus, the reported inventory value reflects the actual amount paid after discounts but excludes VAT.
What is beginning inventory plus net purchase?
Beginning inventory plus net purchases refers to the total amount of goods available for sale during a specific period. Beginning inventory is the value of inventory at the start of the period, while net purchases account for the total purchases made during that period minus any returns or allowances. This calculation helps businesses determine the cost of goods available for sale, which is essential for assessing inventory management and sales performance.
A company's COGS was 4000 Determine net purchases and ending inventory given goods available for sale were 11000 and beginning inventory was 5000?
goods available for sales = beginning inventory + net purchases. So net purchases = 6000 Goods available for sale - ending inventory = COGS So ending inventory = 7000
What happens to net income if inventory is understated?
If inventory is understated, net income is also understated because cost of goods sold will be overstated
The two most widely used methods for determining the cost of inventory are?
Cost or Net Realisable Value, which ever is lower. Net realisable value can also include the cost of repairing damaged inventory to get it to a sellable condition.
What is meant by the term inventory?
inventory (also called stocks) comprises of work in progress ,stores & spares; raw materials;packing materials etc.they are valued at net realisable value or valued at cost whichever is lower.
What is Principal of valuation of closing stock?
from ssap 9 lower of cost or net realisable value
What method of valuation should be used if the pricing issues from inventory must be deferred until the end of the accounting cycle?
FiFO In case the pricing issues from inventory must be deferred until the end of the accounting cycle, prudent norms require that the inventory be valued on FIFO basis would generally be the case, save where any particular situation demands special attention, as in the case where the current market value is lower than the actual landed cost of the materials, in which case the lower market realisable cost comes into play. However, where the material is being held as a part of an actual executable contract which is valid as on the date of determining the value, even if it is higher than the actual realisable value, would be the correct cost as long as it is deemed to be the net realisable value of the said materials. This is my personal opinion and from my reading of the materials available on this matter, seems to be what the statute requires too.
Explain with examples two instances when net realisable value may be lower then cost?
Net realizable value (NRV) may be lower than cost when inventory becomes obsolete, such as outdated electronics that can no longer be sold at their original price. Another instance is when market demand decreases significantly; for example, if a farmer harvests crops but faces a surplus in the market, the selling price may drop below the production cost, leading to a lower NRV. In both cases, companies must write down the inventory to reflect its lower value in financial statements.
Should purchase of inventory be reported net of discount and net of vat?
Yes, the purchase of inventory should be reported net of discounts, as these discounts represent reductions in the purchase price that effectively lower the cost of inventory. However, inventory should be reported at its gross amount before VAT, as VAT is typically recoverable and does not form part of the cost of inventory for accounting purposes. Thus, the reported inventory value reflects the actual amount paid after discounts but excludes VAT.
What is beginning inventory plus net purchase?
Beginning inventory plus net purchases refers to the total amount of goods available for sale during a specific period. Beginning inventory is the value of inventory at the start of the period, while net purchases account for the total purchases made during that period minus any returns or allowances. This calculation helps businesses determine the cost of goods available for sale, which is essential for assessing inventory management and sales performance.
What does net of something mean?
It means that you either substracted or added all relevant costs: gross inventory: 100,000 discount of 10% net inventory: 100,000 * (0.9) =90,000 The new inventory is net of the discount.
A company's COGS was 4000 Determine net purchases and ending inventory given goods available for sale were 11000 and beginning inventory was 5000?
goods available for sales = beginning inventory + net purchases. So net purchases = 6000 Goods available for sale - ending inventory = COGS So ending inventory = 7000
When quick ratio is greater than current ratio?
The main difference between quick and current ratios is the inventory. In cases where inventory value is in -ve (ie, stale goods and disposing them off takes money. hence, the net value of inventory goes -ve), CR < QR [addition of -ve qty] HTH
What happens to net income if inventory is understated?
If inventory is understated, net income is also understated because cost of goods sold will be overstated
What is net trading?
Net Trading Assets = Accounts Recievable + Inventory - Accounts Payable
