Inventories Q7

Q7: On what basis are Inventories valued in the Balance sheet?


Study Guide chapter 4 Section 4.2 page 4-7:

“Inventories are valued based on the lower of cost or market value (AASB 102 Inventories, para 9). What this means is that we value inventories at cost; but that we should reduce the value of inventories to market value when the market value is below cost. The market value of inventories is its net realisable value (what we expect we can sell the item for, less the costs of selling it). Where the net realisable value is less than the cost for an item of inventory (as recorded in our firm’s general ledger and subsidiary ledgers) we replace the figure of cost for that item of inventory with the lower net realisable value figure.”