Inventory Valuation: Lower of Cost or Net Realizable Value

Steps:

• Identify original cost of inventory: $2000.
• Calculate net realizable value (NRV): Expected selling price $2000 minus repair costs$400 = $1600.
• Compare to replacement cost: $1000, but NRV takes precedence for impaired items.
• Value at lower of cost ($2000) or NRV ($1600): $1600.

Why A is correct:

• IAS 2 requires inventory at lower of cost and NRV, where NRV is estimated selling price less costs to complete and sell.

Why the others are wrong:

• B: Replacement cost ignores NRV requirement for damaged goods.
• C: Original cost fails to reflect impairment from damage.
• D: Original cost plus repairs exceeds NRV, violating conservatism principle.

Final answer: A