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CFA Level I · CFA Level I Exam · Analysis of Inventories

At year-end, a company holds inventory with a cost of 80,000, an estimated selling price of 95,000, and estimated costs to complete and sell of 18,000. Under IFRS, the amount most likely reported for this inventory and the related write-down are:

Inventory is reported at 77,000 with a 3,000 write-down. Net realisable value is the 95,000 selling price less 18,000 of completion and selling costs. Because NRV is below the 80,000 cost, IFRS requires the lower-of-cost-and-NRV measurement, and gains above cost are not recognised.

  1. ACarrying amount of 77,000 and a write-down of 3,000Correct
  2. BCarrying amount of 80,000 and no write-down
  3. CCarrying amount of 95,000 and a gain of 15,000

Explanation

Net realisable value is 95,000 minus 18,000, which equals 77,000. Inventory is carried at the lower of cost (80,000) and NRV (77,000), so it is written down by 3,000. Gains above cost are never recognised.

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