Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 9: Q3Q (page 474)

Question:What approaches may be employed in applying the LCNRV procedure? Which approach is normally used and why?

Short Answer

Expert verified

The LCNRV can be applied on the basis of individual items, major categories, and total items. Individual item basis is generally used, as it provides the conservative valuation of inventories in the balance sheet.A

Step by step solution

01

Step-by-step-solutionStep1:

Under the individual items basis (or item-by-item basis), lower-of-cost-or-net-realizable-value is applied to individual items in the inventories.

Under the major categories basis, lower-of-cost-or-net-realizable-value is applied on the basis of different categories of inventories held by the business. In this approach, high selling price is offset partially.

Under the total approach, lower-of-cost-or-net-realizable-value is applied on the basis of the total value of the inventory. In this approach, the high selling price is offset totally.

02

Step 2:

In the normal scenario, individual item basis is followed to apply the LCNRV method as it indicates the correct value of the inventory, for reporting in the balance sheet.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Presented below is information related to Langston Hughes Corporation. Price LIFO Index Cost Retail Inventory on December 31, 2017, when dollar-value LIFO is adopted 100 \(36,000 \) 74,500 Inventory, December 31, 2018 110 ? 100,100 Instructions Compute the ending inventory under the dollar-value LIFO method at December 31, 2018. The cost-to-retail ratio for 2018 was 60%.

Steele Corporation purchased a significant amount of raw materials inventory for a new product that it is manufacturing. Steele uses the lower-of-average-cost-or-net realizable value (LCNRV) rule for these raw materials. The net realizable value of the raw materials is below the original cost. In the last 2 years, each purchase has been at a lower price than the previous purchase, and the ending inventory quantity for each period has been higher than the beginning inventory quantity for that period. Instructions (a) (1) At which amount should Steele’s raw materials inventory be reported on the balance sheet? Why? (2) In general, why is the LCNRV rule used to report inventory? (b) What would have been the effect on ending inventory and cost of goods sold had Steele used the LIFO inventory method instead of the average-cost inventory method for the raw materials? Why?

Question:Refer to the data in IFRS9-8 for Keyser’s Fleece Inc. Prepare the journal entries for (a) the wool harvested in the first six months of 2017, and (b) the wool harvested that is sold for $10,500 in July 2017.

Question:What method(s) might be used in the accounts to record a loss due to a price decline in the inventories? Discuss

Sedato Company follows the practice of pricing its inventory at LCNRV, on an individual-item basis. Item No. Quantity Cost per Unit Estimated Selling Price Cost to Complete and Sell 1320 1,200 \(3.20 \)4.50 $1.60 1333 900 2.70 3.40 1.00 1426 800 4.50 5.00 1.40 1437 1,000 3.60 3.20 1.35 1510 700 2.25 3.25 1.40 1522 500 3.00 3.90 0.80 1573 3,000 1.80 2.50 1.20 1626 1,000 4.70 6.00 1.50 Instructions From the information above, determine the amount of Sedato Company inventory
See all solutions

Recommended explanations on Business Studies Textbooks

Introduction to Business

Read Explanation

Intermediate Accounting

Read Explanation

Managerial Economics

Read Explanation

Strategic Analysis

Read Explanation

Change Management

Read Explanation

Financial Performance

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free