Example of net realizable value, Accounting Basics

Assignment Help:

Example of net realizable value?

To exemplify a necessary write-down in the cost of inventory presume that an automobile dealer has a demonstrator on hand. The dealer obtained the auto at a cost of USD 18000. The auto had an actual selling price of USD 19600. Ever since the dealer used the auto as a demonstrator and the new models are coming in the auto now has an estimated selling price of only USD 18100. But the dealer is able to get the USD 18100 only if the demonstrator receives some scheduled maintenance including a tune-up and some paint damage repairs. This work in addition to the sales commission cost USD 300. The net realizable value of the demonstrator after that is USD 17800 (selling price of USD 18100 less costs of USD 300). For inventory purposes the required journal entry is as

Loss Due to the Decline in Market Value of Inventory (-SE)    200

Merchandise Inventory (-A)                                                     200

To write down inventory to net realizable value ($18,000 -$17,800)

This entry treats the USD 200 inventory turn down as a loss in the period in which the decline in utility occurred. Such an entry is essential only when the net realizable value is less than cost. If a net realizable value decline but still exceeds cost the dealer would continue to carry the item at cost.


Related Discussions:- Example of net realizable value

Enumerate about the income summary account, INCOME SUMMARY ACCOUNT This...

INCOME SUMMARY ACCOUNT This is a temporary account which used to summarize the balances of temporary revenue and expense accounts. This is also known as a clearing account. The

The process of adjusting the bond interest expense account, The process of ...

The process of adjusting the bond interest expense account for any premium or discount is called amortization of the premium or discount

What do you mean by capitalize, Q. What do you mean by Capitalize? Capi...

Q. What do you mean by Capitalize? Capitalize -- to capitalize means to record an expenditure on balance sheet as an asset,to be amortized over the future. Opposite is to expen

Explain about accrued assets, Q. Explain about Accrued assets? Accrued ...

Q. Explain about Accrued assets? Accrued assets are assets such like interest receivable or accounts receivable that haven't been recorded by the end of an accounting period. T

Balance sheet concepts, THE BALANCE SHEET CONCEPTS According to Howard,...

THE BALANCE SHEET CONCEPTS According to Howard, a Balance Sheet might be definite as - 'a statement which reports the principles owned by the enterprise and the assert of the c

Effect of transction, example of increase asset, decrease owner equity

example of increase asset, decrease owner equity

Account, #quthe books of deven verma could not be tallied.the accountant tr...

#quthe books of deven verma could not be tallied.the accountant transferred the difference of Rs.1270 in the suspense account on the debit side the following mistakes were found la

Exchange-price or cost principle, Q. Explain about Exchange-price or cost p...

Q. Explain about Exchange-price or cost principle? When resources are transferred between two parties such like buying merchandise on account the accountant must follow the exc

Advantages and disadvantages of fifo, Q. Advantages and Disadvantages of FI...

Q. Advantages and Disadvantages of FIFO? FIFO: Advantages (a) FIFO is easy to apply (b) the assumed flow of costs habitually corresponds with the normal physical flow of goods

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd