Measurement of raw materials
In Nov 01, entity E decided to start producing product P in 02. Production of P requires raw material R, which is incorporated in P. Thus, E purchased 100 units of R in Nov 01. The costs of purchase were CU 12 per unit. Settlement in cash and delivery took place in Nov 01. E expects that the costs of conversion for one unit of P will be CU 20.
On Dec 31, 01, the costs of purchase of R have decreased to CU 7 per unit. These replacement costs are the best available measure of R”s net realizable value. Due to the decrease in the price of R, E expects that it will be able to sell P for only CU 18.
Required
Prepare any necessary entries in E”s financial statements as at Dec 31, 01.
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