Response to the following problem:
Reporting inventories The 2006 financial statements of Thorntons plc, the chocolate maker, include the following explanation concerning inventories:
Inventories are recorded at the lower of cost and net realisable value. Cost includes materials, direct labour and an attributable proportion of manufacturing overheads, based on normal operating capacity, according to the stage of production reached. Net realisable value is the estimated value which would be realised after deducting all costs of completion, marketing and selling. Provision is made to reduce the cost to net realisable value having regard to the age and condition of inventory, as well as its saleability.