Can someone please tell me if something is not right in the office answer in this question?
CPA PEP Prep Q&A
Quiz 3 Question 16 - Inventory Valuation
1. decide whether company is using IFRS or ASPE
since the company is a public company we assume it's using IFRS to value inventory
2. go to IFRS inventory, notice that inventory should be recognized at the LOWER OF NRV and cost (VERY IMPORTANT RULE)
- NRV = net realizable value
which is the market price = 8.00 --> answer 3
- Cost = according to IAS 2
para. 25, it should be either valued at FIFO or Weighted average cost (7.5 as
mentioned - answer 2)
Value @ FIFO =85 k
Value @ LIFO = do not know
However as we need to write down the inventory value to the LOWER OF NRV AND COST, we have to choose the lower amount, which is 7.5 *10k Units, so we choose asnwer number 2
Cindy
Hi Lawrence,
You can't use LIFO under IFRS, it's not allowed. The cds are very interchangeable and would not spoil (it does not matter if they sell the first or last cds purchased because they would not have serial numbers or expiry dates), so the most appropriate costing method is average cost. Since the average cost of all cds purchased was 7.5 x 10,000 = 75,000
Also, since NRV>avg cost you wouldn't need to write up/down the inventory.
The question didn't say they bought or sold any cds after the 10,000, so those are still in inventory at avg cost.