Question

The inventory of Sheridan Company on December 31, 2020, consists of the following items. Cost Net Realizable Value Part per unit Quantity A419 6,400 $15 $27 A435 5,440 A545 12,928 A615 9,600 A721 14,080 A885 17,920 A999) 11,776 Part No.A999 is obsolete and has a realizable value of $1 each as scrap. (a) Determine the inventory as of December 31, 2020, by the LCNRV method, applying this method to each item. Inventory as of December 31, 2020 $ (b) Determine the inventory by the LCNRV method, applying the method to the total of the inventory

Answer 1

AS per LCNRV, the inventory is measured at the lower of cost or Net Realizable Value. This can be done on item to item basis and also on an aggregate basis.

Whenever the NRV is lower than the cost the inventory is written down to the NRV through Profit and loss A/c.

Scrap items are also written down(If realizable value is significantly reduced) or written off (if realizable value is nil). If written down, it is shown at scrap value. If it is written off, it is not shown in the inventory.

PART	QUANTITY	COST(A) [$]	NET REALIZABLE VALUE(B) [$]	LOWER OF (A) OR (B)	TOTAL[Quantity * Lower of (A) or (B)]
A419	6400	15	27	15	$ 96,000
A435	5440	12	9	9	$ 48,960
A545	12928	10	15	10	$ 1,29,280
A615	9600	14	10	10	$ 96,000
A721	14080	13	14	13	$ 1,83,040
A885	17920	20	26	20	$ 3,58,400
A999	11776	9	1	1	$ 11,776
				TOTAL INVENTORY	$ 9,23,456

Solution to Part (a)

THUS, Inventory on December, 2020 = $ 9,23,456

Solution to Part (b)

PART	QUANTITY (A)	COST [$] (B)	TOTAL OF COST(A*B)	NET REALIZABLE VALUE(C) [$]	TOTAL OF NRV (A*C)	LOWER OF total of cost or total of NRV
A419	6400	15	96,000	27	1,72,800
A435	5440	12	65,280	9	48,960
A545	12928	10	1,29,280	15	1,93,920
A615	9600	14	1,34,400	10	96,000
A721	14080	13	1,83,040	14	1,97,120
A885	17920	20	3,58,400	26	4,65,920
A999	11776	9	1,05,984	1	11,776
	TOTAL		$ 10,72,384		$ 11,86,496	$ 10,72,384

THUS, Inventory on December, 2020 = $ 10,72,384