Leather is a primary material used by PT Juri for the manufacture of shoes. Leather inventory at 31 December 2021 had cost Rp50 million to purchase, but only had a net realizable value of Rp30 million. On the basis that PT Juri does not intend to dispose of the leather, the inventory has been included in the financial statements at a value Rp35 million. It is believed that this partially reflects the fall in value of the leather, but also takes account of the intention to retain the inventory for use in the production process. It is expected that the finished shoes, into which the leather will be incorporated, can be sold at reasonable profit margin.
Leather is a primary material used by PT Juri for the manufacture of shoes. Leather inventory at 31 December 2021 had cost Rp50 million to purchase, but only had a net realizable value of Rp30 million. On the basis that PT Juri does not intend to dispose of the leather, the inventory has been included in the financial statements at a value Rp35 million. It is believed that this partially reflects the fall in value of the leather, but also takes account of the intention to retain the inventory for use in the production process. It is expected that the finished shoes, into which the leather will be incorporated, can be sold at reasonable profit margin.
Required:
1. Advice correct accounting treatment of the leather inventory of the company at 31 December 2021. Explain.
2. Provide relevant
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