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CFA Level I · CFA Level I Exam · Analysis of Inventories

Under IFRS, which statement about reversal of inventory write-downs is most accurate?

Under IFRS, a write-down is reversed when net realisable value later recovers, and the reversal is recognised in profit or loss, limited to the amount originally written down so inventory never exceeds original cost. US GAAP, by contrast, generally prohibits such reversals.

  1. AReversals are prohibited under all circumstances
  2. BReversals are recognised in profit or loss, limited to the original write-down amountCorrect
  3. CReversals are recognised in equity and can exceed the original cost

Explanation

IAS 2 requires reversal when NRV increases, limited so the carrying amount does not exceed original cost; the reversal reduces cost of sales in profit or loss. Prohibition applies under US GAAP for inventory not on LIFO or retail methods, not IFRS.

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