Accounting Concepts

Question 1

How is prudence applied to inventory valuation?

Answer 1

Value goods at the lower of cost or NRV

Question 2

Define ‘cost’ in relation to the cost of inventory

Answer 2

cost of purchases AND getting goods to current location and condition (I delivery and installation)

Question 3

Goods costing £500 are damaged & can now be sold for £600 after repairs of £40. What value?

Answer 3

500… lower of cost or NRV… NRV is 560 but cost is less at 500

Question 4

What does NRV stand for and what does it mean?

Answer 4

Net Realisable Value - Selling price minus cost of getting into saleable condition
(e.g. repairs and marketing)