Replacement value and Net realizable value: Information: Products A B C D E F Co
ID: 2757901 • Letter: R
Question
Replacement value and Net realizable value: Information: Products A B C D E F Cost $5.50 $4.80 7.58 9 1.5 3.75 Replacement Cost 6.50 5.00 6.5 7.5 3 4.5 Expected Selling Price 11.00 3.00 8 9.5 10 4 Cost to Complete or sale 4.50 2.00 3 5.5 2.5 2 Normal Profit (Assuming) Instructions: [1] You will apply 25% to calculate the normal profit. (please do not use the one on the table. ) [2] You will create three tables to determine the Net Realizable Value = Ceiling ; Net Realization Value = Floor; Value will be used as the market amount [3] Please explain each value will be used as the market amount [4] Please provide a clear calculation and brief explanation. Replacement value and Net realizable value: Information: Products A B C D E F Cost $5.50 $4.80 7.58 9 1.5 3.75 Replacement Cost 6.50 5.00 6.5 7.5 3 4.5 Expected Selling Price 11.00 3.00 8 9.5 10 4 Cost to Complete or sale 4.50 2.00 3 5.5 2.5 2 Normal Profit (Assuming) Instructions: [1] You will apply 25% to calculate the normal profit. (please do not use the one on the table. ) [2] You will create three tables to determine the Net Realizable Value = Ceiling ; Net Realization Value = Floor; Value will be used as the market amount [3] Please explain each value will be used as the market amount [4] Please provide a clear calculation and brief explanation.Explanation / Answer
Lets review lower of cost or market value for each of the 6 products.
Product A - Replacement cost is higher than NRV floor so select Replacement cost . NRV Celling and Replacement cost both are 6.5 so you can choose either . Lower of cost or Market value is 5.5 for product A (5.5 Vs. 6.5)
Product B - . Replacement cost of 5 is above NRV Celling of 1. So, Replacement cost of 5 can not be taken as Market value. So we have to take NRV Celling of 1 as Market value. Lower of cost or Market value is 1 for product B (4.8 Vs. 1).
Product C - Replacement cost of 6.5 is above NRV Celling of 5. So, Replacement cost of 6.5 can not be taken as Market value. So we have to take NRV Celling of 5 as Market value. Lower of cost or Market value is 5 for product C (7.58 Vs. 5).
Product D - Replacement cost of 7.5 is above NRV Celling of 4. So, Replacement cost of 7.5 can not be taken as Market value. So we have to take NRV Celling of 4 as Market value. Lower of cost or Market value is 4 for product C (9 Vs. 4).
Product E - Replacement cost of 3 is below NRV floor of 5 so Replacement cost of 3 can not be taken as Market value. So,NRV floor of 5 will be taken as market value. Lower of cost or Market value is 1.5 for product C (1.5Vs. 5).
Product F- Replacement cost of 4.5 is above NRV Celling of 2. So, Replacement cost of 4.5 can not be taken as Market value. So we have to take NRV Celling of 2 as Market value. Lower of cost or Market value is 2 for product C (3.75 Vs. 2).
Product A B C D E F Cost (a) 5.50 4.80 7.58 9.00 1.50 3.75 Replacement Cost (b) 6.50 5.00 6.50 7.50 3.00 4.50 Expected Selling Price ( C) 11.00 3.00 8.00 9.50 10.00 4.00 Cost to Complete or sale (d) 4.50 2.00 3.00 5.50 2.50 2.00 Normal Profit 25% on selling price (e) 2.75 0.75 2.00 2.38 2.50 1.00 Net Realisable value = Ceiling ( f=C-d) 6.50 1.00 5.00 4.00 7.50 2.00 Net Realisable value = Floor (g= f-e) 3.75 0.25 3.00 1.63 5.00 1.00