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CA Final · Financial Reporting · Ind AS 2 Inventories

Sagar Fabrics Ltd had an inventory item with cost of ₹8,00,000 at 31 March 20X1. The net realisable value (NRV) was ₹6,50,000, so it wrote down to NRV. At 31 March 20X2, the item is still on hand and, because of a price recovery, its NRV is ₹9,20,000. What is the amount to be recognised as the reversal of the write-down in the year ended 31 March 20X2, and the carrying amount at that date?

The reversal is ₹1,50,000 and the carrying amount becomes ₹8,00,000. A write-down is reversed when NRV recovers, but only to the extent of the original write-down, because inventory cannot be carried above the lower of cost and NRV, where cost is ₹8,00,000.

  1. AReversal ₹2,70,000; carrying amount ₹9,20,000
  2. BReversal ₹1,50,000; carrying amount ₹8,00,000Correct
  3. CReversal ₹1,50,000; carrying amount ₹9,20,000
  4. DNo reversal; carrying amount ₹6,50,000

Explanation

Inventory is carried at the lower of cost and NRV. When the circumstances that caused the write-down no longer exist, the write-down is reversed, but only up to the original write-down amount, so the new carrying amount is capped at cost of ₹8,00,000. Reversal = 8,00,000 - 6,50,000 = ₹1,50,000. Recognising ₹2,70,000 would take the item above cost, which is wrong.

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