A local Chevrolet dealership carries the following types of vehicles: Unit Unit Inventory Items Quantity Cost NRV Vans 3 $ 21,000 $ 19,000 Trucks 6 16,800 15,800 2-door sedans 2 11,800 13,800 4-door sedans 7 15,800 18,800 Sports cars 3 31,000 34,000 SUVs 5 27,600 22,000 Because of recent increases in gasoline prices, the car dealership has noticed a reduced demand for its SUVs, vans, and trucks. 2. Determine whether each inventory item would be reported at cost or net realizable value (NRV). Enter the amount of either the Unit Cost or Unit NRV in the "Lower of Cost and NRV per unit" column and then multiply this amount by the quantity of each inventory item and enter it in the Total column.

Vans, Trucks and SUVs will be reported at NRV while 2-door sedans, 4-door sedans and Sport cars will be reported at cost.

Inventory    Quantity   Lower of Cost and NRV per unit     Total

Vans                  3                $19,000                                    $57,000

Trucks               6                $15,800                                    $94,800  

2-door sedans  2                $11,800                                     $23,600            

4-door sedans  7                $15,800                                     $110,600            

Sports cars       3                $31,000                                     $93,000          

SUVs                 5                $22,000                                    $110,000              

Explanation:

IAS 2 Inventories states that inventory is to be recognized at cost, however, subsequent measurement requires that inventory be carried at the lower of cost or net realizable amount (NRV).

As such, where the cost of inventory is higher than the NRV, it is written down to the NRV using the following entries,

Debit Inventory write off/Cost of goods sold

Credit Inventory account

with the difference between the cost and the NRV.

Inventory      Quantity    unit Cost   unit NRV

Vans                  3             $21,000    $19,000

Trucks               6             $16,800    $15,800

2-door sedans  2             $11,800     $13,800

4-door sedans  7              $15,800   $18,800

Sports cars        3             $31,000    $34,000

SUVs                 5              $27,600   $22,000

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