CFA Level I · CFA Level I Exam · Analysis of Inventories
A company reporting under IFRS wrote 1,000 units down from a cost of $40 to an NRV of $34 per unit in Year 1. In Year 2, 400 of those units remain, and NRV has risen to $45 per unit. Which of the following is closest to the reversal gain recognised in Year 2 on the remaining units?
The reversal gain is about $2,400. The remaining 400 units are carried at $34, and the reversal is capped at the original cost of $40, so only $6 per unit can be restored. The higher NRV of $45 does not allow carrying above cost.
- A$2,400Correct
- B$4,400
- C$6,400
Explanation
The carrying amount of the remaining units is $34 each. The reversal is capped at original cost of $40, so the maximum reversal is 40 - 34 = $6 per unit. For 400 units this gives $2,400. $4,400 would use the NRV excess over cost of 11 incorrectly, and $6,400 mixes up the unit count and rise.
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