Kellerstone Ltd buys used machines which it reconditions and sells on to customers. The company's inventory at the end of its most recent accounting period included the following machines:

Selling expenses are expected to absorb 4% of the expected selling price.

(a) Explain why it is not permissible to value the inventory of machines at the lower of their total purchase price (?52,800) and their total net realisable value.

(b) Compute the value at which the inventory of machines should be measured in the company's financial statements.

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Purchase Expected Reconditioning Expected further costs before sale costs incurred selling price price to date Machine W Machine X Machine Y Machine Z 10,300 650 12,500 17,500 23,000 15,750 850 400 18,450 500 2,100 8,300 900 9,500 52,800 2,000 3,400 62,500