Question

At the end of year 1, a company reduced its inventory cost from $100 to its net realizable value of $80. As of the end of year 2, the inventory was still on hand and its net realizable value increased to $150. Under IFRS, what journal entry should the company record for year 2 to properly report the inventory value?
A. Debit inventory for $20 and credit expense for $20.
B. Debit inventory for $70 and credit expense for $70.
C. Debit inventory for $70, credit retained earnings for $50, and credit expense for $20.
D. Debit inventory for $20, debit expense for $30, and credit retained earnings for $50.

Answer 1

Answer:

A. Debit inventory for $20 and credit expense for $20.

Explanation:

We should remember that we cannot recognize a gain before is realized. Increasing the inventory for their net realizable value would reocgnize the gain before selling the good that is not correct. The comapny will adjust to their original cost of 100 that is, reverse the 20 dollars loss of the previous year.