Business Administration 2257 Lecture Notes - Lecture 6: Financial Statement, Weighted Arithmetic Mean, Write-Off

• School: Western University
• Department: Business Administration
• Course: Business Administration 2257
• Professor: Ian Dunn

Document Summary

Chapter six presentaion and analysis of inventory. Valuing inventory at the lower of cost and net realizable value. If the value on inventory plummets, the cost basis of accouning is no longer followed. Assets should not be carried in excess amounts expected to be realized from their sale or use. When the net realizable value of inventory is lower than its cost, inventory is writen down to its net realizable value. This is called lower of cost and net realizable value (lcnrv) rule. For a merchandising company, net realizable value (nrv) is the selling price less any costs to make the goods ready for sale. The lcnrv rule is applied to the inventory at the end of the accouning period and requires an adjusing entry if nrv is lower than cost. Determine if nrv is lower than cost: if nrv is lower than cost, adjust and report inventory on the inancial statements at nrv rather than cost.