Day: February 11, 2020

If an item of stock which originally cost £1,420 can be sold for £1,600, after incurring further completion costs of £110 and advertising costs of £130, then it should be included in the balance sheet stock valuation at:

Select ONE answer:

1. £1,360
2. £1,420
3. £1,490
4. £1,600

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – The net realisable value of an item of stock is its actual or estimated selling price less all further costs to completion and all costs to be incurred in marketing, selling and distributing the item. In this case, this is £1,600 – £110 – £130 = £1,360. According to IAS / GAAP, when the NRV of an item is less than its cost, the item should be valued at its NRV, i.e. £1,360.
2. Not correct
3. Not correct
4. Not correct

 

This work is licensed under a Creative Commons Attribution 4.0 International License.