Asked by Jaleel Joshua on Jul 29, 2024
Verified
Net realisable value of inventories may fall below cost for a number of reasons including: I. \quad Product obsolescence
II. \quad Piysical deterioration of irventories
III. \quad Arl increase in the expected replacernent costs of the irventories
IV. \quad Arl increase in the estirnated costs of completion
V. \quad An error in quartities purchased causing overstocking
A) I, II, IV and V only
B) I, IV and V only
C) II, III and IV only
D) I, II and V only
Product Obsolescence
Occurs when a product becomes outdated and is no longer needed or wanted by consumers, often due to technological advances.
Physical Deterioration
The gradual loss of an asset's functional utility or value due to wear and tear or aging.
- Understand the definitions and applications of net realisable value in inventory valuation.
Verified Answer
TL
thato lesoleJul 30, 2024
Final Answer :
A
Explanation :
Product obsolescence, physical deterioration, an increase in the estimated costs of completion, and errors in quantities purchased causing overstocking can all lead to the net realisable value of inventories falling below cost. An increase in the expected replacement costs does not directly affect the net realisable value of existing inventories.
Learning Objectives
- Understand the definitions and applications of net realisable value in inventory valuation.
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