When inventory is written down to net realisable value, the resulting loss is generally recognized as:
Correct answer: A. An expense in the period of the write-down
- A. An expense in the period of the write-down
- B. A charge against share capital
- C. A direct increase in retained earnings
- D. A liability payable to customers
Explanation
A write-down recognizes that the inventory is no longer expected to recover its original carrying cost. The loss is therefore charged to profit or loss in the period of the write-down.
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About Inventory Valuation
Inventory valuation determines the cost of unsold goods and its effect on cost of sales and profit. The work covers inventory counts, included costs, FIFO and weighted-average costing, and the rule that inventory is reported at the lower of cost and net realisable value, not simply at its expected selling price.
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More Inventory Valuation questions
A loss caused by abnormal wastage of materials during production is generally treated as:
Under IAS 2, how are fixed production overheads normally allocated to inventory?
Which item is normally included in the cost of inventory under IAS 2?
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Which statement best describes the weighted average cost method when identical inventory units are purchased at different prices?
A retailer has 80 units costing Rs. 15 each and buys 120 more units at Rs. 20 each. Under a periodic weighted average method, the cost per unit is: