Question

Lower of Cost or Market

Palmquist Company has five different inventory items that it values by the lower of cost or market rule applied on an individual item basis. The normal markup on all items is 20% of cost. The following information is obtained from the company’s records:

Item	Units	Cost	Replacement Cost	Net Realizable Value
1	500	$10.00	$ 9.10	$ 9.20
2	400	8.00	8.10	7.80
3	300	15.00	13.50	14.00
4	200	18.00	12.00	17.00
5	100	25.00	25.50	25.30

Required:

1. Assume that Palmquist uses the FIFO inventory valuation method. Compute the correct inventory value under the lower of cost or market rule. Round your answers to the nearest cent.

   Item		Lower of Cost or Market
   1		$
   2
   3
   4
   5

   
   Compute the total inventory value if the lower of cost or market is applied to each individual item.

   $

2. Assume that Palmquist uses the LIFO inventory method. Compute the correct inventory value under the lower of cost or market rule. Round your answers to the nearest cent.

   Item		Lower of Cost or Market
   1		$
   2
   3
   4
   5

   
   Compute the total inventory value if the lower of cost or market is applied to each individual item.

   $ 16,900

3. Assume that Palmquist uses IFRS. Compute the correct inventory value under the lower of cost or market rule. Round your answers to the nearest cent.

   Item		Lower of Cost or Market
   1		$
   2
   3
   4
   5

   
   Assume that Palmquist uses IFRS. Compute the correct inventory value under the lower of cost or market rule.

   $ 17,820

Answer 1

Answer:

Given that

Item	Units	Cost	Replacement Cost	Net Realizable value
1	500	$10.00	$9.10	$9.20
2	400	$8.00	$8.10	$7.80
3	300	$15.00	$13.50	$14.00
4	200	$18.00	$12.00	$17.00
5	100	$25.00	$25.50	$25.30

1)

Item	Cost	Replacement Cost	Net Realizable value	NRV Less Markup	Lower of cost of Market value
1	$10.00	$9.10	$9.20	7.2	9.1
2	$8.00	$8.10	$7.80	6.2	7.8
3	$15.00	$13.50	$14.00	11	13.5
4	$18.00	$12.00	$17.00	13.4	17
5	$25.00	$25.50	$25.30	20.3	25

2)

Item	Units	Valuation	Total
1	500	9.1	4550
2	400	7.8	3120
3	300	13.5	4050
4	200	17	3400
5	100	25	2500
			17620

Total inventory valuation is 17620

3)

Item	Units	Cost	Total
1	500	5000	4550
2	400	3200	3120
3	300	4500	4050
4	200	3600	3400
5	100	2500	2500
	Total value	18800	17620

Lower of cost or market on inventory as a whole is 17620