Question

As of December 31, year 2, a company has an inventory item that was originally purchased for $80 in year 1. The inventory item was written down to its net realizable value of $60 as of December 31, year 1. As of December 31, year 2, the inventory item had a net realizable value of $75 and a replacement cost of $65. Normal profit margins for this company are 20%. Under IFRS, what is the carrying amount of the inventory item as of December 31, year 2

Answer 1

The net realizable value of the inventory as of December 31, year 2, according to IFRS is $75.

What is net realizable value under IFRS?

Under the IFRS, inventories should be stated at the lower of cost and net realizable value. The net realizable value equals the selling price less the estimated costs of sale.

Data and Calculations:

Inventory purchase cost = $80

Net realizable value in year 1 = $60

Net realizable value in year 2 = $75

Replacement cost = $65

Normal profit margins = 20%

Thus, the net realizable value of the inventory as of December 31, year 2, according to IFRS is $75.

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