[TheresaT]

NINJA Question –

Loft Co. reviewed its inventory values for proper pricing at year-end. The following summarizes two inventory items examined for the lower of cost or market:

From NINJA FAR MCQ:

Inventory Item #1 Inventory Item #2

---

---

Original cost $210,000 $400,000

Replacement cost 150,000 370,000

Net realizable value 240,000 410,000

Net realizable value

less profit margin 208,000 405,000

What amount should Loft include in inventory at year-end, if it uses the total of the inventory to apply the lower of cost or market?

The answer adds the cost/value of each item together before applying LCM. However, the reference include to 2212.36 applies LCM separately to each item. (This is the way I did it, but my calculation was not a choice). Why the difference?

[Anonymous]

I get 610,000. I'm not sure I understand your question though. The problem says to use the total of inventory. I think doing them all separately would consistently result in a lower inventory number.

[Zuly]

Yeah, agree with Bill. When I saw this question I recognized it immediately. You have to add up both inventory items and that will give you the total inventory and then from there you can calculate the LCM. Just to clarify, NRV total is 650, Replacement cost 520 and NRV-profit margin is 813. If you compare the middle number of 650 to the cost of 610, the cost of 610 would be the correct answer. Hope that makes sense.

FAR - (11/01/14) 71 (02/07/15) 79
AUD - (04/30/15) 86
BEC - (07/21/15) 73 (10/01/15) 75
REG - (11/30/15) 55 (05/19/16) 74

[Author]

Replies