AP7-11B(Lower of cost and net realizable value) Potash Ontario Company (POC) is a Canadian company...
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AP7-11B(Lower of cost and net realizable value) Potash Ontario Company (POC) is a Canadian company that manufactures and sells potash globally. At the end of 2020, POC's chief financial officer noted that global prices for potash had declined significantly due to weaker demand and increased competitive pressures. The average cost of production for potash in 2020 was $250 per metric tonne. The average selling price for potash on the international markets at December 31, 2020, was $235 per metric tonne.
Required
a. Why is the decline in the market price for potash relevant in this situation?
b. If POC has 2,360 metric tonnes of potash on hand on December 31, 2020, what amount should be reported for ending inventory on the statement of financial position?
c. What other information would be relevant in determining the year-end reporting amount?
d. Which accounting concepts are relevant in deciding the dollar amount of inventory to be reported? Explain why these concepts are important.
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