CFA Level I · CFA Level I Exam · Analysis of Inventories
Under IFRS, a company holds inventory with a cost of 80,000 and a net realisable value of 72,000 at year-end. The most likely effect of the valuation is that the company:
The company reports inventory at 72,000, the lower of cost and net realisable value, and recognises the 8,000 write-down as an expense in profit or loss. It is not deferred, disclosed only in notes, or placed in other comprehensive income.
- Acarries inventory at 72,000 and recognises an 8,000 write-down in profit or lossCorrect
- Bcarries inventory at 80,000 and discloses the 8,000 decline in notes only
- Ccarries inventory at 72,000 and recognises an 8,000 loss in other comprehensive income
Explanation
IAS 2 requires inventory at the lower of cost and net realisable value. The 8,000 (80,000 - 72,000) write-down is expensed, typically in cost of sales, in profit or loss, not in OCI.
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