CFA Level I · CFA Level I Exam · Analyzing Balance Sheets
Under IFRS, inventories are most likely measured at:
Under IFRS, inventories are measured at the lower of cost and net realisable value. This conservative rule recognises a write-down when expected selling price less costs to complete and sell falls below cost, so inventory is not carried above the amount the entity expects to recover.
- Athe lower of cost and net realisable value.Correct
- Bthe higher of cost and net realisable value.
- Cfair value at each reporting date, with changes taken to equity.
Explanation
IAS 2 requires inventories to be measured at the lower of cost and net realisable value, so losses are recognised when value falls below cost. The higher-of rule would overstate assets, and fair-value measurement through equity is not the general basis for inventory.
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