CFA Level I · CFA Level I Exam · Analyzing Balance Sheets
An inventory item cost 120 per unit. Its estimated selling price is 135, estimated costs to complete are 10 and estimated selling costs are 8. Under IFRS, the carrying amount per unit is closest to:
The carrying amount is closest to 117 per unit. Net realisable value is selling price of 135 less 10 to complete and 8 to sell, which equals 117. Because this is lower than the cost of 120, IFRS requires a write-down to 117.
- A117.Correct
- B120.
- C135.
Explanation
Net realisable value is 135 - 10 - 8 = 117. This is below cost of 120, so the item is written down to 117 under the lower of cost and NRV rule. Using the selling price of 135 ignores the costs to complete and sell.
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