Khalid purchased goods with an invoice value of 150000 for r

Khalid purchased goods with an invoice value of $150,000 for resale purposes. The company incurs $10,000 to transport these goods to the warehouse. The company was entitled to a 10% discount because they purchased in bulk. Besides that, as Khalid pays to his suppliers early they were futher entitled to a 5% discount for early payment.

During year end, the management noticed that the inventory were slow moving and they were unable to sell it, thus the management decided to make a little modification to the inventory so as to improve the attractiveness of the inventory. A further $12,000 will be spent on the inventory after which they will be able to sell the inventory for an estimated value of $153,000.

Required:

Determine the value the inventory is to be carried.

Solution

Total discount offered by the company = 10 + 5 = 15 %

Total dicount in dollars = 150,000*15/100 = 22,500$

Amount payed by Khalid = 10,000 + 150,000 - 22,500 = 137,500$

Effective cost after doing modification = 137,500 + 12,000 = 149,500$

This is the value of the inventory.