Alpha Ltd has three finished products (related to three different product lines) in its ending inventory at 31 December 2018. The following table provides additional information about each product: Product Cost $ Replace Cost $ Selling Price $ Net Profit Margin X Y Z 130 160 100 140 135 80 160 140 100 20% 20% 15%   At 31 December 2019, Alpha Ltd still had the same three different products in its inventory. The following table provides updated information for the company’s products: Product Cost $ Replace Cost $ Selling Price $ Net Profit Margin X Y Z 130 160 100 180 150 100 190 160 130 20% 20% 15%   Alpha Ltd expects to incur selling costs equal to 5 percent of the selling price. Required: Determine the amount at which Alpha Ltd should report its inventory on the 31 December 2018 and 2019, balance sheet under (1) IFRS and (2) U.S. GAAP.

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A:

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.