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Why is Merchandise on Sale for $500 listed on the Balance Sheet as Inventory for $350? - Accounting Questions Answered
Another reason for valuing items in inventory at their cost prices instead of selling prices is that inventory cannot be sold without marketing effort. Until the marketing effort is fulfilled and the product actually sold, the company cannot increase its value of the inventory from $350 to $500. There can be exceptions made to this rule. An instance is for mining companies such as gold mining where no sales effort is required to sell gold and the substantial completion of manufacturing or mining of the gold allows the company to record gold inventories at net realizable value which is the selling price minus the cost incurred to dispose off the product. Other mining companies such as silver, platinum or copper manufacturers are also permitted to adopt this accounting rule. For indepth information on this, visit our chapter on Lower of Cost or Market for Inventory Pricing. View 500 More Questions by Topic
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