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Inventory valuation help

Hi,
Need some help on this question related to inventories: show the relevant journal entries and adjustment for the following:
Items which has cost 80,000 and would usually sell for 110,000 have been discovered to be faulty, it requires 20,000 to be spent in order to be sold for 90,000?

Thanks

Reply 1

aliman65

Original post by tylercat1

Inventory should be valued at the lower of cost or net realisable value. Cost is obviously 80,000, net realisable value is the estimated selling price less any cost required to bring the asset up to scratch (so to speak) - hence 90,000-20,000 = 70,000. Therefore inventory should be valued at 70,000

edit: forgot about journal entries - let me dig into my notes a min

Reply 2

aliman65

The following link will explain the entries better than I can:

http://www.accountingcoach.com/blog/why-and-how-do-you-adjust-the-inventory-account-in-the-periodic-method

Reply 3

tylercat1

Original post by aliman65

The following link will explain the entries better than I can:

http://www.accountingcoach.com/blog/why-and-how-do-you-adjust-the-inventory-account-in-the-periodic-method

Thanks, I was thinking the same thing, debited cogs 10,000 and credited inventories by 10,000, was a little unsure though, think ill stick with it now :smile: