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A retailer wishes to report its merchandise inventory on its balance sheet at its retail value. This would violate which accounting principle/guideline? A) Cost B) Full Disclosure c) Monetary Unit
150% its option A) Cost
A) Cost
As per IAS-2, inventory is measured at lower of cost and net realizable value. It also outlines acceptable methods of determining cost, including specific identification method (in some cases), FIFO, and weighted average cost method.
The standard cost and retail price methods may also be used for measurement of cost, provided that the results approximate actual cost.
The option A is correct.
First of all - MERCHANDISE INVENTORY is not recognized as true Inventory for a RETAILER since these stock are almost like consignment stocks wherein there ownership is still with the supplier of the product.
The buying organisation ( RETAIL UNITS ) liability to pay comes , once the said product is sold . So unless the inventory is acquired by the Merchandising organising they are not true inventory - or valued in the books of accounts .
Unlike normal stock , when its received we book Creditors and show the value of the STOCK as assets in the P& L and Balance sheet .
The ownership of the merchadise inventory is still with the merchandising organising and not with the RETAIL unit .
So unless there is any stock acquisition done by the RETAIL Unit , it cannot be shown as STOCKs in the books of accounts
A) Cost
It violates the cost principle as it has to be valued by its cost until it is sold then he report the retail value as sales then deduct the cost of goods to get the contribution margin
cost
Historical cost concept
Inventory should valued at cost price or market price which ever is lower in the financial statement.
Joshi Mathew
CIA #1036906
Merchandise inventory is value for each unit of the product.
Option A is correct answer
