Kettle Creek Foods holds 400 cases of item A at a cost of 12 each. Estimated selling price is 11 a case, costs to complete 0.40 and costs to sell 0.60. Company policy charges inventory write-downs to cost of goods sold. Record the write-down at 30 June.
Kettle Creek Foods holds 400 cases of item A at a cost of 12 each. Estimated selling price is 11 a case, costs to complete 0.40 and costs to sell 0.60. Company policy charges inventory write-downs to cost of goods sold. Record the write-down at 30 June.
Answer
Dr Cost of Goods Sold 800; Cr Inventory 800
Accounts - Cost of Goods Sold - Inventory - Loss on Inventory Write-down - Allowance for Inventory Decline - Accounts Payable - Sales Revenue NRV = 11 − 0.40 − 0.60 = 10, below cost of 12, so 400 × 2 = 800 comes off the asset. The debit goes to Cost of Goods Sold because the policy says so (the default under both frameworks); the credit reduces Inventory directly. Loss on Inventory Write-down is the separate-line presentation used only when a prompt states it; Allowance for Inventory Decline is a contra-asset this course never uses; Sales Revenue and Accounts Payable have nothing to do with a measurement adjustment.
L1 §7.3.3; LI §6.3; IAS 2 ¶28–34 (verified-facts 2.5-4)