Molly starts up in business as a florist on 1 April 2004. For the first six months, she has a draft profit of $12,355. On investigation you discover the following: Rent paid for the 12 months ending 31 March 2005 of $800 has not been recorded in the accounts. Closing inventory in the accounts at a cost of $1,000 has a net realisable value of $800. What is the adjusted profit for the period? A $11,355 B $11,755 C $12,155 D $12,555

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.