INVENTORIES – LCNRV

1. Which statement is correct regarding net realizable value (NRV)?

a. NRV refers to the net amount that an entity expects to realize from the sale of inventory in
the ordinary course of business.
b. NRV for inventories may not equal fair value less costs to sell.
c. Both a and b.
d. Neither a nor b.

2. The cost of inventories may not be recoverable if:

I. The inventories are damaged
II. The inventories have become wholly or partially obsolete
III. The selling prices have declined
IV. The estimated costs of completion or the estimated costs to be incurred to make the sale
have increased.

a. I, II, III and IV c. I and II only

b. I, II and III only d. I, II and IV only

3. Which is correct regarding write-down of inventory to net realizable value?

a. Materials and other supplies held for use in the production of inventories are not written down
below cost if the finished products in which they will be incorporated are expected to be sold
at or above cost.
b. When a decline in the price of materials indicates that the cost of the finished products
exceeds net realizable value, the materials are written down to net realizable value. In such
circumstances, the best available measure of the net realizable value of materials is the
replacement cost.
c. Both a and b.
d. Neither a nor b.

4. On December 31, 2021, an entity reported inventory at P 3,000,000 cost and P 2,900,000 net
realizable value. On December 31, 2022, the inventory was P 4,000,000 at cost and P 3,700,000
at net realizable value. The entity made net purchases of P 9,000,000 during 2022. What amount
should be reported as cost of goods sold for 2022?
a. 8,000,000
b. 8,200,000
c. 8,450,000
d. 8,300,000
On December 31, 2021, Rosey Company experienced a decline in the value of inventory resulting in a
write down from 4,000,000 cost to 3,500,000 NRV. The entity used the allowance method to record the
necessary adjustment. In 2022, market conditions have improved dramatically. On December 31, 2022,
the inventory had a cost of 5,000,000 and NRV of 4,800,000. The entity made purchases of 20,000,000
in 2022.

5. What amount should be recognized as gain on reversal of inventory write down in 2022?
a. 200,000
b. 300,000
c. 500,000
d. 0

6. What amount should be reported as cost of goods sold in 2022?

a. 19,000,000
b. 19,300,000
c. 18,700,000
d. 24,000,000

At December 31, 2021 the balance of Cutey’s ending inventory account was 5,000,000 and the
allowance for inventory write-down account before any adjustment was 200,000.

Relevant information about the proper valuation of inventories and the breakdown of inventory cost and
market data at December 31, 2021 are as follows:

Cost Replacement Cost Sales Price NRV Normal Profit

Cadbury 1,000,000 1,100,000 1,450,000 700,000 100,000

Kisses 1,500,000 1,200,000 1,750,000 1,600,000 200,000

Toblerone 1,700,000 1,300,000 2,000,000 1,450,000 250,000

Hershey’s 800,000 1,000,000 1,300,000 950,000 250,000

Total 5,000,000 4,600,000 6,500,000 4,700,000 800,000

7. How much is the loss on inventory write-down to be included in Cutey’s 2021 cost of sales?
a. 350,000
b. 300,000
c. 400,000
d. 450,000
 8. The following figures relate to inventory of materials held at December 31:

Item X Item Y

Cost P200,000 P400,000

Replacement cost 180,000 370,000

Estimated costs to convert materials into

finished goods 100,000 200,000

Estimated selling price of finished goods 320,000 610,000

Estimated costs to sell 10,000 15,000

The entity should recognize loss on write-down of inventory of materials of

a. P50,000 c. P5,000

b. P30,000 d. Nil

9. In accordance with PIC Q&A No. 2018-10 PAS 2 – Scope of disclosure of inventory write-
downs, an entity should disclose:
a. Write-downs of inventory held at the end of the reporting period.
b. Write-downs representing sales below cost during the reporting period.
c. Both a and b.
d. Neither a nor b.

10. Which statement is incorrect regarding reversal of inventory write-down to net realizable
value?
a. If the selling price of inventory that has been written down to net realizable value in a prior
period, subsequently recovers, the previous amount of the write-down can be reversed.
b. The reversal is limited to the amount of the original write-down.
c. The amount of any reversal of any write-down of inventories, arising from an increase in
net realizable value, shall be recognized as a reduction
d. None, all the statements are correct.
Caramela Development Corporation bought a 10- hectare land in Malolos, to be improved, subdivided
into lots, and eventually sold. Purchase price of the land was P58,000,000. Taxes and documentation
expenses on the transfer of the property amounted to P800,000. The lots were classified as follows:

Lot class No. of lots Selling price per lot Total clearing costs

A 10 P1,000,000 None

B 20 800,000 P1,000,000

C 40 700,000 3,000,000
D 50 600,000 8,000,000

11. The cost per lot of class B lots under the relative sales value method of inventory valuation is
a. P674,285
b. P610,000
c. P602,380
d. P560,000

On December 1, 2021, Deci Company entered into a commitment to purchase 100,000 barrels of
aviation fuel for P 55 per barrel on March 31, 2022. The entity entered into this purchase commitment
to protect itself against the volatility in the aviation fuel market. By December 31, 2021, the purchase
price of aviation fuel had fallen to P 50 per barrel. However, by March 31, 2022, when the entity took
delivery of the 100,000 barrels the price of aviation fuel had risen to P 53 per barrel.

12. What amount should be recognized as loss on purchase commitment in 2021?

a. 500,000
b. 200,000
c. 300,000
d. 0
13. What amount should be recognized as gain on purchase commitment for 2022?
a. 500,000
b. 300,000
c. 800,000
d. 0
14. What amount should be debited to purchases on March 31, 2022?
a. 5,500,000
b. 5,300,000
c. 5,000,000
d. 4,700,000