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27 August, 21:39

On April 1, Robert LLC purchased two units of inventory, A and B. The cost of unit A was $660, and the cost of unit B was $595. On April 30, Robert LLC had not sold the inventory. The net realizable value of unit A was now $670 while the net realizable value of unit B was $510. The adjustment associated with the lower of cost and net realizable value on April 30 will be:

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  1. 27 August, 22:44
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    Adjustment entry:

    Cost of goods Sold A/c Dr. $85

    To Inventory $85

    Explanation:

    As for the provided information, using specific identity method, both goods are considered different and evaluated separately:

    Goods A

    Cost = $660, Net realizable value = $670

    Therefore, it will be valued at cost of $595, thus, no adjustment required.

    Goods B

    Cost = $595, Net Realizable Value = $510

    Thus, it will be valued at net realizable value.

    The difference that is $595 - $510 = $85 will be written off from inventory and will be charged to cost of goods sold.

    Entry will be:

    Cost of goods Sold A/c Dr. $85

    To Inventory $85

    This will reduce the balance of inventory by $85, and will follow lower of cost or Net Realizable Value method.
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