Q9Q - Intermediate Accounting (Kieso)

Question

Question: Under what circumstances is relative sales value an appropriate basis for determining the price assigned to inventory?

Step-by-Step Solution

Answer

The relative sales value basis is used in the lump-sum purchase scenario. 

Step-by-step-solution Step1:

Lump-sum purchase is the situation, in which businesses purchase a group of multiple units at a single lump-sum price. Lump-sum-purchase is also known as market purchase. 

Step 2:

Under the basket purchase, inventories values are allocated on the basis of relative sales value, to report the value of the inventory accurately in the balance sheet.