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Question:

Core Corp. has an inventory with a carrying value of $12,000. Using the data given below, calculate the current value of inventory after adjustments if Core reports under GAAP.
Selling price: $8,000
Selling cost: $1,500
Normal profit: $2,000
Replacement cost: $6,500

A $6,500
Explaination

Under US GAAP, the inventory is written down if the carrying value of inventory is above the replacement cost, but the replacement cost cannot be greater than the Net Realizable Value (Selling price – Selling cost) or lower than NRV minus Normal profit.
The replacement cost is $6,500 which is also equal to NRV (8,000 – 1,500).
Since the carrying value of inventory is $12,000, the inventory will be written down to the replacement cost of $6,500.