Question
1,000 units of work-in-progress cost $50 each. Estimated selling price is $58, costs to complete are $6 per unit, and selling costs $4 per unit. The inventory write-down is:
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 2 — lower of cost and net realisable value
Inventory is carried at the lower of cost and net realisable value, where NRV is estimated selling price less the costs still to be incurred to complete and sell. The comparison is normally made item by item, not across the inventory as a whole.
Common mistakes
- Comparing total cost with total NRV, which lets a profitable line mask a write-down on another.
- Using selling price as NRV without deducting the remaining costs to complete and sell.
- Failing to reverse a previous write-down when NRV has recovered, which IAS 2 requires.
IFRS vs US GAAP: IFRS requires reversal of a write-down when NRV recovers; US GAAP prohibits it.
Further readingIAS 2: lower of cost and NRV