Inventory item Z8 has a cost price of $30 and a net realisable value $25,while item D3 has a cost price of $20,a net realisable value $25 and a replacement cost of $21.Under the lower of cost and net realisable value rule of inventory valuation,applied on an item-by-item basis,the value of inventory is:
A) $50
B) $51
C) $45
D) none of the above

Question

Quizplus · Accepted Answer

Under the lower of cost and net realisable value rule, inventory is valued at the lower of its cost price and net realisable value. For item Z8, the net realisable value is less than its cost price, so it is valued at $25. For item D3, the net realisable value is equal to its cost price, but since the replacement cost is greater than the net realisable value, it is valued at $21.

Therefore, the total value of inventory is (Z8) $25 + (D3) $21 = $46. However, since the replacement cost of D3 is greater than its net realisable value, the inventory value must be adjusted to the lower amount, resulting in a total inventory value of $45, choice C.

Inventory Item Z8 Has a Cost Price of $30 and a Net