Please determine the amount at which the inventory should be reported on Decembe
ID: 2772433 • Letter: P
Question
Please determine the amount at which the inventory should be reported on December 31 Year 1 balance sheet using the following information:
Historical cost
$20,000
Replacement cost
$14,000
Estimated selling price
$17,000
Estimated costs to complete and sell
$2,000
Normal profit margin as a percentage of selling price
20%
The entire inventory on hand at December 31, Year 1 was completed in Year 2 at a cost of $1,800 and sold at a price of $17,150.
Determine the impact on income in Year 1 and Year 2 under (1) IFRS and (2) US GAAP.
Historical cost
$20,000
Replacement cost
$14,000
Estimated selling price
$17,000
Estimated costs to complete and sell
$2,000
Normal profit margin as a percentage of selling price
20%
Explanation / Answer
IFRS method Historical cost 20000 Net Realisable value 17000 Write off from Income in year 1 3000 Stock as on 1st Jan- year 2 17000 Cost to complete and sale 1800 Total Cost of Sales 18800 Sales Price 17150 Income for the year 2 -1650 GAAP Historical cost 20000 Replacement Cost 14000 Write off from Income in year 1 6000 Stock as on 1st Jan- year 2 14000 Cost to complete and sale 1800 Total Cost of Sales 15800 Sales Price 17150 Income for the year 2 1350