Valuing Stocks

The basic rule is that "stocks are valued at the lower of cost or net realisable value." Sometimes I get confused when the scenario is asked in a different way. Here are two scenarios that I want you to attempt:

Value the following items of stock:

  1. Material costing $12,000 bought for processing and assembly for a profitable special order. Since buying these items, the cost price has fallen to $ 10,000.
  2. Equipment constructed for a customer for an agreed price of $ 18,000. This has recently been completed at a cost of $ 16,800. It has now been discovered that, in order to meet certain regulations, conversion with an extra cost $ 4,200 will be required. The customer has accepted partial responsibility and agreed to meet half the extra cost.
What are your answers ? I am sure that you will get it right. Respond as comments on the blog.

Answer 1 : Value of Material is _____

Answer 2: Value of Equipment is _______

Give reasons for your answer..


Santosh Puthran


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