[Anonymous]

I’m having trouble with one of the AICPA released questions. I was wondering if I could get some help here.

The replacement cost of an inventory item is below the NRV less profit margin. The inventory item’s original cost is above the NRV. Under the lower of cost or market method, the inventory item should be valued at

a. Original cost

b. Replacement cost

c. NRV

d. NRV – Profit Margin

So my solution is to use numbers.

Ceiling (NRV) – $20

Replacement Cost – $10

Floor (NRV – PM) – $15

Cost – $22

So I would choose $15 for my market price and compare it to cost, $22. My answer is d, but they say it’s b. I don’t understand their explanation.

Thanks

[Phllop]

I got the same answer you did, and I usually find these problems quite easy. I'd be interested in seeing their explanation.

REG: 85
AUD: 74, 85
FAR: 74 (sigh)
BEC: 80 (don't even ask me how)

When I say C-P you say 'Ayyyyy show me the money'
-PO

[mrcpa]

I think your missing a part of that question. It should read as:

The replacement cost of an inventory item is below the net realizable value and above the net realizable value less a normal profit margin. The inventory item's original cost is above the net realizable value. Under the lower of cost or market method, the inventory item should be valued at:

So lets assign values based off that:

Replacement Cost = 50

NRV (Ceiling) = 60

NRV Less PM ( floor)= 40

Original cost is 70

1) So You take the middle of Replacement, Ceiling and Floor which is Replacement = The middle of these 3 are market value

2) Then you take the lowest between that answer and the Original cost which is Replacement

Hope this helps

Hope that helps

Licensed - 2012

[Anonymous]

Thanks for the quick replies, Phllop and mrcpa. I also usually find these problems easy and I was concerned when I wasn't getting it right. I searched the Roger forum and apparently there was an error with the printing. Other candidates got my answer as well.

Well back to studying…

[Author]

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