The Following Inventory Information Was Taken from the Records of Kleinfeld

question 45

Multiple Choice

The following inventory information was taken from the records of Kleinfeld Inc.: $\begin{array}{ll}\text { Historical cost } & \$ 12,000 \\\text { Replacement cost } & \$ 7,000 \\\text { Expected selling price } & \$ 9,000 \\\text { Expected selling cost } & \$ 500 \\\text { Normal profit margin } & 50 \% \text { of price }\end{array}$
-Assume that subsequent to your adjustment the expected selling price increases to $13,000.(All the rest of the facts are the same.) What adjustment to inventory should be made under IAS 2 after this event?

• A)Inventory should be increased (debited) by $3,500.
• B)Inventory should be increased (debited) by $4,000.
• C)No adjustment should be made to inventory once it is written down.
• D)Inventory should be increased (debited) by $1,000.

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Definitions:

Opportunity Cost

The missed opportunity for profit from other options when one option is selected.

Fully Depreciated

The state of an asset after its cost has been completely expensed or written off through depreciation, implying it has no book value.

Average Cost Curve

A graphical representation showing how the average cost per unit of output varies with the level of output.

Marginal Cost Curve

A graphical representation showing how the marginal cost changes with changes in production volume.