CFA Level I · CFA Level I Exam · Analysis of Inventories
At year-end, a company holds 1,000 units of inventory purchased at 50 per unit. Selling price is 58 per unit, and estimated costs to complete and sell are 10 per unit. The company had previously written the inventory down to 45 per unit in an earlier period, and the original cost was 50. Under IFRS, the carrying amount at year-end is closest to:
The carrying amount is about 48,000. Net realisable value is 58 less 10 of costs, or 48 per unit, which is below the cost of 50. IFRS permits reversing the earlier write-down, but only up to the lower of cost and current NRV, so 1,000 units are carried at 48,000.
- A45,000
- B48,000Correct
- C50,000
Explanation
NRV per unit = 58 - 10 = 48, below cost of 50. The carrying amount is the lower of cost and NRV = 48 per unit, so 48,000. The earlier 45 write-down is reversed up to 48 (not above), as the value recovered partly. Keeping 45,000 ignores permitted reversal; 50,000 exceeds NRV.
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