The following information relates to the total production costs and estimates of realisable value for a line of water pistols produced by Splash Happy Co Ltd. $$\begin{array} { | l | r | r | r | r | }
\hline { \text { Item } } & \begin{array} { c }
\text { Production cost } \
\$ 000
\end{array} & \begin{array} { c }
\text { Sales proceeds } \
\$ 000
\end{array} & \begin{array} { c }
\text { Packaging costs } \
\$ 000
\end{array} & \begin{array} { c }
\text { Transport costs } \
\$ 000
\end{array} \
\hline \text { Big Bang } & 8 & 17 & 5 & 2 \
\hline \text { Little } & 10 & 13 & 1 & 1 \
\hline \text { Splash } & 19 & 25 & 4 & 3\
\hline
\end{array}$$ Packaging and transport costs are necessarily incurred in order to be able to sell the inventory.What is the value of the inventory in accordance with IAS 2?

Question

The following information relates to the total production costs and estimates of realisable value for a line of water pistols produced by Splash Happy Co Ltd. $$\begin{array} { | l | r | r | r | r | } 
\hline  { \text { Item } } & \begin{array} { c } 
\text { Production cost } \
\$ 000
\end{array} & \begin{array} { c } 
\text { Sales proceeds } \
\$ 000
\end{array} & \begin{array} { c } 
\text { Packaging costs } \
\$ 000
\end{array} & \begin{array} { c } 
\text { Transport costs } \
\$ 000
\end{array} \
\hline \text { Big Bang } & 8 & 17 &  5 & 2 \
\hline \text { Little } & 10 & 13 &  1 & 1 \
\hline \text { Splash } & 19 & 25 &  4 & 3\
\hline
\end{array}$$ Packaging and transport costs are necessarily incurred in order to be able to sell the inventory.What is the value of the inventory in accordance with IAS 2?

Quizplus · Accepted Answer

The value of inventory is the lower of cost and net realizable value (NRV). NRV is calculated as sales proceeds minus packaging and transport costs. For Big Bang: NRV = 17 - 5 - 2 = 10; for Little: NRV = 13 - 1 - 1 = 11; for Splash: NRV = 25 - 4 - 3 = 18. The inventory value is the sum of the lower of cost and NRV for each item: Big Bang = 8, Little = 10, Splash = 18. Total = 8 + 10 + 18 = 36.

The Following Information Relates to the Total Production Costs and Estimates