Carlsberg Corporation has 1,000 units of product#1and 2,000 units of product#2 in its inventory at December 31, 2011.Specific data with respect to each product follows: What amount will be reported on the company statement of financial position at December 31, 2011 for ending inventory using lower-of-cost-or-net realizable value?

Question

Carlsberg Corporation has 1,000 units of product#1and 2,000 units of product#2 in its inventory at December 31, 2011.Specific data with respect to each product follows:  What amount will be reported on the company statement of financial position at December 31, 2011 for ending inventory using lower-of-cost-or-net realizable value?

Quizplus · Accepted Answer

To calculate the ending inventory using lower-of-cost-or-net realizable value, we need to compare the cost of inventory with its net realizable value (NRV). The NRV is the estimated selling price minus the estimated costs of completion and disposal. 
For Product #1, the cost is CHF50 per unit, and the NRV is CHF60 per unit, so the NRV is higher than the cost. Therefore, we use the cost of CHF50 per unit for Product #1. 
For Product #2, the cost is CHF60 per unit, and the NRV is CHF70 per unit, so the NRV is higher than the cost. Therefore, we use the cost of CHF60 per unit for Product #2. 
The total cost of the ending inventory is (1,000 units x CHF50 per unit) + (2,000 units x CHF60 per unit) = CHF100,000 + CHF120,000 = CHF220,000. 
The total NRV of the ending inventory is (1,000 units x CHF60 per unit) + (2,000 units x CHF70 per unit) = CHF60,000 + CHF140,000 = CHF200,000. 
Since we use the lower-of-cost-or-net realizable value, we need to report the ending inventory at CHF200,000. Therefore, the amount reported on the company statement of financial position at December 31, 2011 for ending inventory using lower-of-cost-or-net realizable value is CHF148,000 (i.e., 1,000 units x CHF50 per unit + 2,000 units x CHF60 per unit).

Carlsberg Corporation Has 1,000 Units of Product#1and 2,000 Units of Product#2