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Commodity A has 10 units at a unit cost of $6 and a unit net realisable value of $5. Applying lower of cost and net realisable value, at what amount is commodity A reported?
A$110
B$60
C$55
D$50
Answer & Solution
Correct answer: D. $50
1. Total cost = $10 \times \$6 = \$60$.
2. Total net realisable value = $10 \times \$5 = \$50$.
3. Lower of cost and net realisable value takes the smaller figure, $\$50$.
4. Rule out $\$60$: that is cost, which is the higher figure here.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.1.3 "Lower of Cost or Net Realisable Value", p.123_
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