ECONOMICS

Detailed explanation-1: -Inventories should be valued at the lower of cost and net realisable value.

Detailed explanation-2: -It refers to the items that cannot replace another item during the sale or production purposes. In other words, it refers to the items that are peculiar and specific. For example, inventory used for the production of pens cannot be used for producing pencils.

Detailed explanation-3: -Following are the steps for valuation of inventories: A. Determine the cost of inventories B. Determine the net realizable value of inventories C. On Comparison between the cost and net realizable value, the lower of the two is considered as the value of inventory.

Detailed explanation-4: -If the merchandise must be assembled or otherwise prepared for sale, then the cost of getting the product ready for sale is considered part of the cost of inventory. Also, the cost of finished goods inventory includes the cost of conversion (labour, overheads, etc.).