PRACTICE QUESTIONS 4

Imran Ltd. manufactures executive toys. It intends to improve its image by repackaging its exIsting stock in new covers,
and to offer discounts to retailers for prompt payment.
The financial details of 'Gold Cube', one of the items to be repackaged, are as follows:

Per item (Rs.)

Cost of manufacture 25
Repacking cost to be incurred 7.5
Selling price 30
Prompt payment account 10%

Required
At what amount should each item of stock be valued in the accounts?

SOLUTION

Cost of Manufacture 25

Selling price 30
Less: Estimated cost of completion (Repacking cost to be incurred) (7.5)
Less: Estimated cost necessary to make sales (0)
Net realizable value 22.5

Inventories are measured at lower of cost and NRV so value of inventory is Rs. 22.5 that should appear in Accounts.