Net realisable value of inventories may fall below cost for a number of reasons including:
I Product obsolescence
II Physical deterioration of inventories
III An increase in the expected replacement costs of the inventory
IV An increase in the estimated costs of completion
A) I, II and IV only;
B) I, III and IV only;
C) II, III and IV only;
D) I and II only.

Question

Net realisable value of inventories may fall below cost for a number of reasons including: 
I Product obsolescence
II Physical deterioration of inventories
III An increase in the expected replacement costs of the inventory
IV An increase in the estimated costs of completion
A) I, II and IV only;
B) I, III and IV only;
C) II, III and IV only;
D) I and II only.

Quizplus · Accepted Answer

Product obsolescence and physical deterioration are factors that can cause the net realisable value of inventories to fall below cost. An increase in the estimated costs of completion can also affect net realisable value, as it increases the cost of producing the inventory and can reduce its selling price. However, an increase in expected replacement costs of the inventory may not necessarily lead to a fall in net realisable value, as this cost may be passed on to customers through higher selling prices. Therefore, only options I, II, and IV are correct.

Net Realisable Value of Inventories May Fall Below Cost for a Number