IFRS-FUNDAMENTALS5 MIN READ
Inventory at Lower of Cost and NRV
Calculate and explain an IAS 2 lower-of-cost-and-net-realizable-value adjustment.
A product line has 1,200 units at a carrying cost of $84 each. Current ordinary selling price is $76. Freight to customers is $3 per unit and sales commission is 4% of selling price. IAS 2 lower of cost and net realizable value The common shortcut is to compare cost only with the headline selling price. That misses costs necessary to make the sale and can leave inventory above recoverable value. 1. Start with cost Carrying cost is $84 per unit, so total inventory before write-down is 1,200 x $84 = $100,800. Cost is the ceiling only if NRV is…
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