Chapter 6
KAPLAN PUBLISHING
103
In particular, any percentage additions to cover overheads must be
based on the normal level of production. If this provision was not
made, the inventory could be overvalued at the end of a period of
low production, because there would be a smaller number of items
over which to spread the overhead cost.
These groups of cost must relate to either:
•
bookcases sold during the year, or
•
bookcases in inventory at the year-end (i.e. 200 bookcases).
Fair value less further costs to sell (NRV)
The comparison between cost and fair value less further costs to sell
must be made item by item, not on the total inventory value. It may be
acceptable to consider groups of items together if all are worth less than
cost.
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