What would be the effect on a business profit, which has been calculated including inventory at cost, of discovering that one of its inventory items which cost R7,500 has a net realisable value of R8,500?

Question

What would be the effect on a business profit, which has been calculated including inventory at cost, of discovering that one of its inventory items which cost R7,500 has a net realisable value of R8,500?

An increase of R8 500.

b.
An increase of R1 000.

c.
No effect at all.

d.
A decrease of R1 000.

Answer 1

a. An increase of R8,500.

This discovery would result in an increase in the overall profit of the business by R8,500, as the inventory item is worth more than its cost. This would positively impact the financial performance of the business.