CFA Level I · CFA Level I Exam · Analyzing Income Statements
Under IFRS, a company reports inventory at cost of 500,000 with an estimated selling price of 520,000 and estimated costs to complete and sell of 45,000. The inventory write-down recognized in the income statement is closest to:
IFRS values inventory at the lower of cost and net realizable value. NRV is 520,000 less 45,000, or 475,000, which is below the 500,000 cost. The write-down recognized as an expense is therefore about 25,000.
- A0
- B25,000Correct
- C45,000
Explanation
Net realizable value = 520,000 - 45,000 = 475,000. Inventory is carried at the lower of cost and NRV, so the write-down is 500,000 - 475,000 = 25,000. 45,000 ignores the selling price, and 0 ignores the costs to sell.
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