Inventories are valued on the balance sheet at the lower of cost or net realizable value. Net realizable value is equal to $3,150,000 ($3,500,000 selling price – $300,000 completion costs – $50,000 disposal costs). Since the original cost of $3,200,000 exceeds the net realizable value of $3,150,000, a $50,000 write-down is necessary. An inventory write-down has no impact on the quick ratio since inventory is excluded from both the numerator and denominator of the quick ratio.
