Financial Reporting and Analysis Q239

239A kitchen appliance store prepares its financial statements in accordance with IFRS. The store has 500 mixer-grinders in its inventory. Each unit is sold at a price of $150. The store paid on an average of $140 per unit to the manufacturer of the appliance. Sale of appliances has been slow in recent months. The store estimates it can sell each mixer-grinder for $130 if it announces a sale for a limited period along with free shipping at the cost of $5 per mixer-grinder. The manufacturer has also lowered the price to $100 because of the low demand. The total carrying amount of the 500 mixergrinders on the store’s balance sheet would be closest to:

Option : A
Explanation : Inventory is measured at the lower of cost or net realizable value. Lower of the two is NRV which is $125. Under IFRS, net realizable value (NRV) = estimated selling price - estimated costs necessary to get the inventory ready for sale and make the sale = 130 – 5 = 125. For 500 units: 500 * 125 = $62,500.

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