CFA Level I · CFA Level I Exam · Analysis of Inventories
Under IFRS, inventory is most likely carried at:
Under IFRS, inventory is measured at the lower of cost and net realisable value. NRV is the estimated selling price less costs of completion and costs necessary to make the sale. Replacement cost is not the IFRS benchmark, and using the higher amount would overstate inventory.
- Athe lower of cost and net realisable valueCorrect
- Bthe lower of cost and replacement cost
- Cthe higher of cost and net realisable value
Explanation
IFRS requires inventories to be measured at the lower of cost and net realisable value (NRV). Replacement cost is the ceiling and floor measure under US GAAP's lower-of-cost-or-market rules for some methods, not under IFRS. Carrying inventory at the higher amount would overstate assets.
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