Lower of Cost or Market
Response to the following problem:
The Palmquist Company has five different inventory items that it values by the lower of cost or market method. The normal markup on all items is 20% of cost. The following information is obtained from the company's records:
|
Item
|
Units
|
Cost
|
Replacement Cost
|
Net Realizable Value
|
|
1
|
500
|
$10.00
|
$ 9.10
|
$ 9.20
|
|
2
|
400
|
8.00
|
8.10
|
7.80
|
|
3
|
300
|
15.00
|
13.50
|
14.00
|
|
4
|
200
|
18.00
|
12.00
|
17.00
|
|
5
|
100
|
25.00
|
25.50
|
25.30
|
Required
1. Compute the lower of cost or market value for each item.
2. Compute the total inventory value if the lower of cost or market is applied to (a) each individual item and (b) the inventory as a whole. Explain the reason for the difference between the two values.
3. Compute the lower of cost or market value for each item if the Palmquist Company uses IFRS.