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Which of the following is true regarding the valuation of closing inventory?
- a)It is valued at the selling price.
- b)It is valued at cost or net realisable value, whichever is higher.
- c)It is valued at cost or net realisable value, whichever is lower.
- d)It is not included in the Trading Account.
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
Which of the following is true regarding the valuation of closing inve...
Valuation of Closing Inventory
In accounting, the valuation of closing inventory is an important aspect as it impacts the calculation of cost of goods sold and ultimately the profitability of a business. The correct method of valuation ensures that the financial statements present a true and fair view of the company's financial position.
Correct Valuation Method
The correct method for the valuation of closing inventory is to value it at cost or net realisable value, whichever is lower. This means that the inventory should be valued at the lower of the cost to acquire or produce the inventory and the estimated selling price less any additional costs needed to make the sale.
Reasoning behind the Rule
Valuing closing inventory at the lower of cost or net realisable value ensures that the inventory is not overstated on the balance sheet. If the net realisable value is lower than the cost, it indicates that the inventory may not be sold at a price higher than its cost, and therefore a lower valuation is appropriate.
Impact on Financial Statements
Valuing closing inventory at the lower of cost or net realisable value can have an impact on the company's profitability, as it may result in a lower cost of goods sold and higher gross profit. This, in turn, can affect the company's overall financial performance and the decision-making process for stakeholders.
In conclusion, it is important for businesses to adhere to the correct valuation method for closing inventory to ensure accurate financial reporting and compliance with accounting standards.
In accounting, the valuation of closing inventory is an important aspect as it impacts the calculation of cost of goods sold and ultimately the profitability of a business. The correct method of valuation ensures that the financial statements present a true and fair view of the company's financial position.
Correct Valuation Method
The correct method for the valuation of closing inventory is to value it at cost or net realisable value, whichever is lower. This means that the inventory should be valued at the lower of the cost to acquire or produce the inventory and the estimated selling price less any additional costs needed to make the sale.
Reasoning behind the Rule
Valuing closing inventory at the lower of cost or net realisable value ensures that the inventory is not overstated on the balance sheet. If the net realisable value is lower than the cost, it indicates that the inventory may not be sold at a price higher than its cost, and therefore a lower valuation is appropriate.
Impact on Financial Statements
Valuing closing inventory at the lower of cost or net realisable value can have an impact on the company's profitability, as it may result in a lower cost of goods sold and higher gross profit. This, in turn, can affect the company's overall financial performance and the decision-making process for stakeholders.
In conclusion, it is important for businesses to adhere to the correct valuation method for closing inventory to ensure accurate financial reporting and compliance with accounting standards.
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Which of the following is true regarding the valuation of closing inve...
Closing inventory is valued at cost or net realisable value, whichever is lower, to ensure that the inventory is not overstated on the financial statements.
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Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer?
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Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer?.
Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer?.
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Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer?, a detailed solution for Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer? has been provided alongside types of Which of the following is true regarding the valuation of closing inventory?a)It is valued at the selling price.b)It is valued at cost or net realisable value, whichever is higher.c)It is valued at cost or net realisable value, whichever is lower.d)It is not included in the Trading Account.Correct answer is option 'C'. Can you explain this answer? theory, EduRev gives you an
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