Question # 1The cost of inventory on hand of a firm on 31-12-2013 was Rs. 800,000.There were doubtsregarding its condition and net realizable value. It was found that:• The good stocks were 75% and were expected to realize the normal sales price of costplus 25%.• 15% were slightly damaged and required an expenditure of 10% of the sale value formaking it readily saleable at the normal price.• 10% was damaged and would fetch only 60% of the normal sale price.Required:Value of inventory to be shown in the statement of financial position

To calculate the value of inventory to be shown in the statement of financial position, we need to consider the condition and net realizable value of each category of stocks.

1. Good Stocks: These are 75% of the total inventory. So, the cost of good stocks = 75% of Rs. 800,000 = Rs. 600,000. The normal sales price of these goods is cost plus 25%. So, the normal sales price = Rs. 600,000 + 25% of Rs. 600,000 = Rs. 750,000.

2. Slightly Damaged Stocks: These are 15% of the total inventory. So, the cost of slightly damaged stocks = 15% of Rs. 800,000 = Rs. 120,000. To make these readily saleable at the normal price, an expenditure of 10% of the sale value is required. So, the net realizable value = Rs. 120,000 - 10% of Rs. 120,000 = Rs. 108,000.

3. Damaged Stocks: These are 10% of the total inventory. So, the cost of damaged stocks = 10% of Rs. 800,000 = Rs. 80,000. These would fetch only 60% of the normal sale price. So, the net realizable value = 60% of Rs. 80,000 = Rs. 48,000.

Adding up the net realizable value of all categories of stocks, the value of inventory to be shown in the statement of financial position = Rs. 750,000 (good stocks) + Rs. 108,000 (slightly damaged stocks) + Rs. 48,000 (damaged stocks) = Rs. 906,000.