Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

5. Inventory

Inventory Errors

Financial Accounting

5. Inventory

Inventory Errors

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Multiple Choice

Damaged, obsolete (out-of-date), and/or deteriorated goods that can be sold should be reported in the financial statements at:

Net realizable value

Replacement cost

Original cost

Market value on the date of purchase

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Verified step by step guidance

Understand the concept of net realizable value (NRV): NRV is the estimated selling price of an asset in the ordinary course of business minus any costs necessary to complete the sale, such as transportation or disposal costs.

Review the accounting principle of conservatism: This principle states that when there is uncertainty, accountants should choose the option that results in lower profits or asset values to avoid overstating financial positions.

Identify the condition of the goods: Damaged, obsolete, or deteriorated goods are not expected to fetch their original cost or market value on the date of purchase. Their value should reflect the amount that can realistically be recovered from selling them.

Apply the valuation rule: According to accounting standards, such goods should be reported at their net realizable value, as this represents the most accurate and conservative estimate of their worth in the financial statements.

Exclude other options: Replacement cost, original cost, and market value on the date of purchase do not account for the diminished value of the goods due to damage, obsolescence, or deterioration, making them inappropriate for financial reporting in this context.