Answer:
Debit Inventory write off (p/l) $5,000
Credit Inventory $5,000
Being entries to write down inventory to its realizable amount.
Explanation:
Inventories IAS 2 requires that inventory be carried at the lower of cost or net realizable value (after an initial recognition at the cost). The cost includes the cost of the item and other associated cost such as freight . However, its carrying amount(cost) must be reviewed to ensure it is not higher than the realizable value.
Given that the replacement cost has now fallen to $5 per unit which is lower than the cost of $6, it means that the amount that can be realized from the sale of a unit is $5.
= $6 - $5
= $1
Total adjustment required = $1 * 5000
= $5,000
Entries required to write down inventory to its realizable value
Debit Inventory write off (p/l) $5,000
Credit Inventory $5,000
Being entries to write down inventory to its realizable amount.
