CFA Level I · CFA Level I Exam · Analysis of Inventories
At year-end, a firm reporting under IFRS holds 2,000 units with a cost of $50 per unit. The estimated selling price is $58 per unit, and selling costs are $11 per unit. The write-down recognised is closest to:
The write-down is about $6,000. NRV is the $58 selling price less $11 selling costs, or $47 per unit. Cost of $50 exceeds NRV by $3, and multiplying by 2,000 units gives $6,000.
- A$6,000Correct
- B$8,000
- C$16,000
Explanation
NRV per unit = 58 - 11 = $47. Cost exceeds NRV by 50 - 47 = $3 per unit. Write-down = 2,000 x 3 = $6,000. The $16,000 figure is the 8 gain times 2,000, ignoring selling costs; $8,000 would result from an unrelated mistaken adjustment.
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