Question

P9-11 (LCNRV) Taipai Co. follows the practice of valuing its inventory at the LCNRV. The following information is available from the company's inventory records as of December 31, 2015 (amounts in thousands) Estimated Selling Completion & Selling Unit Item Quantity Cost Price/Unit Cost/Unit 1,100 800 NT$7.50 NT$10.50 9.40 NT$1.50 8.20 1.30 1,000 1,000 1,400 5.60 7.20 6.30 6.70 1.75 3.80 1.80 0.70 6.40 Instructions Jay Shin is an accounting clerk in the accounting department of Taipai Co., and he cannot understand how completion and selling costs affect the determination of net realizable value. Jay is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant (a) Calculate the LCNRV using the "individual-item" approach (b) Show the journal entry he will need to make in order to write down the ending inventory from cost to market. (c) Then, write a memo to Jay explaining what net realizable value is as well as how it is computed. Use your calculations to aid in your explanation.

Answer 1

Calculation of Cost with LCNRV(Lower of cost or NRV) method-"Individual Item" approach Net Realisable Value Lower of Completion & Inventory Inventory Item Quantity Unit CostEstimated Cost Valuation Selling Price lling costNRVCost or I NRV unit 1.5 1100 7.5 10.5 7.5 8250 8250 9.4 800 8.2 1.3 8.1 8.1 6560 1000 5.6 7.2 1.75 5.45 5.45 6.3 1.8 1000 3.8 3.8 3800 3800 4.5 6.4 6.7 0.7 1400 8960 Total 33170 32380 Journal Ent Accounts Title and Explanation Debit ($) Credit ($ Date Dec 31, 2015 Loss on valuation of invento 790 Inventory Value 790 To record the inventory valuation gain or loss c) Net Realizable Value is the net selling price after deducting completion & selling cost from the estimated selling price. The calculation for the same can be given as hereunder:

Net Realisable Value Completi on & Estimated SelingNRV Selling Price cost/ unit 1.5 10.5 9 9.4 1.3 8.1 7.2 1.75 5.45 6.3 1.8 4.5 6.7 0.7