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Commodity D has 40 units at a unit cost of $3 and a unit net realisable value of $4. Applying lower of cost and net realisable value, at what amount is commodity D reported?
A$120
B$140
C$160
D$280
Answer & Solution
Correct answer: A. $120
1. Total cost = $40 \times \$3 = \$120$.
2. Total net realisable value = $40 \times \$4 = \$160$.
3. Lower of cost and net realisable value takes the smaller figure, $\$120$.
4. Rule out $\$160$: net realisable value is higher here, so cost governs.
_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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