) At which amount should Barilgaon’s raw materials inventory be reported on the statement of financial position? Why? ii) In general, why is the LCNRV rule used to report inventory? iii) What would have been the effect on ending inventory and cost of goods sold had Barilgaon used the average-cost inventory method instead of the FIFO inventory method for the raw materials? Why?
Barilgaon Company purchased a significant amount of raw materials inventory for a new product
that it is manufacturing. It uses the LCNRV rule for these raw materials. The net realizable value
of the raw materials is below the original cost. Barilgaon uses the FIFO inventory method for these
raw materials. In the last 2 years, each purchase has been at a lower price than the previous
purchase, and the ending inventory quantity for each period has been higher than the beginning
inventory quantity for that period.
Required:
i) At which amount should Barilgaon’s raw materials inventory be reported on the statement of
financial position? Why?
ii) In general, why is the LCNRV rule used to report inventory?
iii) What would have been the effect on ending inventory and cost of goods sold had Barilgaon
used the average-cost inventory method instead of the FIFO inventory method for the raw
materials? Why?
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