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?

a.
An increase of R8 500.

b.
An increase of R1 000.

c.
No effect at all.

d.
A decrease of R1 000

Answer 1

b. An increase of R1 000.

Since the net realizable value of the inventory item is higher than its cost, the business would be able to sell it for R8,500, resulting in an increase in profit of R1,000.