The following inventory information was taken from the records of Kleinfeld Inc.:$\begin{array}{ll}
\text { Historical cost } & \$ 12,000 \
\text { Replacement cost } & \$ 7,000 \
\text { Expected selling price } & \$ 9,000 \
\text { Expected selling cost } & \$ 500 \
\text { Normal profit margin } & 50 \% \text { of price }
\end{array}$
-Assume that subsequent to your adjustment the expected selling price increases to $13,000.(All the rest of the facts are the same.) What adjustment to inventory should be made under IAS 2 after this event?
A)Inventory should be increased (debited) by $3,500.
B)Inventory should be increased (debited) by $4,000.
C)No adjustment should be made to inventory once it is written down.
D)Inventory should be increased (debited) by $1,000.

Question

Quizplus · Accepted Answer

Under IAS 2, inventory should be written down to the lower of cost and net realizable value (NRV). NRV is the estimated selling price less the estimated selling costs. In this case, the NRV is $9,000 - $500 = $8,500. Since the historical cost of $12,000 is greater than the NRV of $8,500, the inventory should be written down by $3,500.

The Following Inventory Information Was Taken from the Records of Kleinfeld