At the year end a trader has three product lines. Line A: 100 units, cost £40, selling price £55, selling costs £18 per unit. Line B: 200 units, cost £25, selling price £60, selling costs £10 per unit. Line C: 50 units, cost £30, selling price £48, selling costs £5 per unit. At what value should total inventory be stated under IAS 2?

Answer and explanation

Correct answer: D. £10,200

  1. Step 1: IAS 2 says inventory is valued at the lower of cost and net realisable value (NRV), line by line.
  2. Step 2: A: NRV = £55 − £18 = £37, below cost £40, so use £37 × 100 = £3,700. B: NRV £50 is above cost £25, so use £25 × 200 = £5,000. C: NRV £43 is above cost £30, so use £30 × 50 = £1,500.
  3. Step 3: Total = £3,700 + £5,000 + £1,500 = £10,200.
Answer
£10,200.
Why not the others: £10,500: This values every line at cost and ignores that line A's net realisable value is below its cost. £15,850: This uses net realisable value for every line, but IAS 2 requires the lower of cost and NRV for each. £12,000: This values line A at its selling price instead of its lower NRV, forgetting that selling costs are deducted.

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