8Minerals and mineral products, such as coal or iron ore, may also be measured at net realizable value

in accordance with well-established industry practices. In the mining industry, when minerals have
been extracted, there is often an assured sale under a forward contract, government guarantee, or in
an active market. Because there is negligible risk of failure to sell, measurement at net realizable
value is justified. In these contexts, and similar to the accounting for agricultural assets, minerals
and mineral products are recorded at net realizable value at the point of extraction, with a gain
recorded in the period of extraction. In subsequent periods, changes in value of minerals and
mineral products inventory are recognized in profit or loss in the period of the change.
3 LEARNING OBJECTIVE
Explain when companies use the
relative standalone sales value
method to value inventories.
ILLUSTRATION 9-10
Allocation of Costs,
Using Relative
Standalone Sales Value
Number Sales Total Relative Cost Cost
of Price Sales Sales Total Allocated per
Lots Lots per Lot Price Price Cost to Lots Lot
A 100 $10,000 $1,000,000 100/250 $1,000,000 $ 400,000 $4,000
B 100 6,000 600,000 60/250 1,000,000 240,000 2,400
C 200 4,500 900,000 90/250 1,000,000 360,000 1,800
$2,500,000 $1,000,000
ILLUSTRATION 9-11
Determination of Gross
Profi t, Using Relative
Standalone Sales Value
Number of Cost per Cost of
Lots Lots Sold Lot Lots Sold Sales Gross Profit
A 77 $4,000 $308,000 $ 770,000 $ 462,000
B 80 2,400 192,000 480,000 288,000
C 100 1,800 180,000 450,000 270,000
$680,000 $1,700,000 $1,020,000
408 Chapter 9 Inventories: Additional Valuation Issues
The ending inventory is therefore $320,000 ($1,000,000 2 $680,000).
Woodland also can compute this inventory amount another way. The ratio of cost to
selling price for all the lots is $1 million divided by $2,500,000, or 40 percent. Accordingly,
if the total sales price of lots sold is, say $1,700,000, then the cost of the lots sold is
40 percent of $1,700,000, or $680,000. The inventory of lots on hand is then $1 million less
$680,000, or $320,000.
The petroleum industry widely uses the relative standalone sales value method to
value (at cost) the many products and by-products obtained from a barrel of crude oil.