Lower of Cost and Net Realizable Value (LCNRV) (Coursework Sample)

Course Name: Financial Accounting

Student’s Name:

Course Code: ACCT 201

Student’s ID Number:

Semester: 1st

CRN:

Academic Year: 1444 H

For Instructor’s Use only
Instructor’s Name:

Students’ Grade: /15

Level of Marks: High/Middle/Low
Q1.
a. A company abandons the historical cost principle and adopts the LCNRV method of valuing inventory. Explain the process of LCNRV (Mark 1)
This simply indicates that a write-down would be done from the recorded cost to the lower NRV if inventory was held on the accounting records at a value larger than its net realizable value (NRV). In essence, a Loss for Decline in NRV would be the offsetting negative and the Inventory account would get a credit. This debit would appear as a charge against (decrease in) revenue in the income statement.
b. Abdullah Corporation gives you the following information about its inventory for four different products as on December 31st 2020.
EstimatedExpected
ProductOriginal CostCompletion Cost Selling Price
ASAR25SAR10SAR40
BSAR42SAR20SAR58
CSAR120SAR40SAR150
DSAR18SAR5SAR26
Using the lower-of-cost-or-net realizable value approach applied on an individual-product basis, compute the inventory valuation to be reported for each product on December 31, 2020. (Marks 2)
EstimatedExpected
ProductOriginal CostCompletion Cost Selling Price NRV LCNRV
ASAR25SAR10SAR40 35 35
BSAR42SAR20SAR58 62 58
CSAR120SAR40SAR150 160 150
D SAR18SAR5 SAR26 23 24
Q2.a. IFRS requires capitalizing actual interest (with modification) in self-constructed assets. What are the five steps necessary to meet IFRS requirement. (Marks 1)
5-step model
* Identify the contract.
* Separate performance obligations.
* Determine transaction price.
* Allocate transaction price.
* Recognize revenue.
* On November 1, 2020, Saif Company contracted Ahmed Construction Co. to construct a building for SAR 1,600,000 on land costing SAR 400,000 (purchased from the contractor and included in the first payment). Saif made the following payments to the construction company during 2021.
Date

Amount SAR


1st Jan

500,000

500,000x12/12 = 500, 000

1st Mar

400,000

400,000x10/12 = 333333.33

1st Jun

350,000

350,000x7/12 = 204166.67

1st Sep

500,000

500,000x4/12 = 166666.67

1st Dec

250,000

250,000x1/12 = 20833.333

Required: Compute weighted-average accumulated expenditures for 2021 (Marks 2)
Date

Monthly weighted-average expenditures (in SAR)

1st Jan

500,000 x 12/12 = 500,000

1st Mar

400,000 x 10/12 = 333333.33

1st Jun

350,000 x 7/12 = 204,166.67

1st Sep

500,000 x 4/12 = 166,666.67

1st Dec

250,000 x 1/12 = 20,833.333

Accumulated weighted-average expenditures

1,225,000

Accumulated weighted-average expenditures = SAR 1,225,000
Q3 Long-lived tangible asset is associated with either depreciations, impairments or depletions. Explain why companies revalue such assets on an annual basis, and give examples on depreciations, impairments and depletions. (Marks 3)
Revaluations are done in order to record the fair market worth of fixed assets. To deciding whether to invest in a different company, this may be useful. In order to prepare for sales discussions, an asset that a firm wishes to sell is revalued.
How much of an asset's value has been consumed is shown through depreciation. It enables businesses to purchase assets over a predetermined length of time and generate income from those assets. Buildings, machinery, ROU assets, and intangible assets are examples of long-lived assets. When an asset's fair value is lower than its carrying value, it is said to be "damaged." The cost of taking natural resources from the ground, such as lu