Inventories at cost and NRV

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Edpayasugo
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Joined: 25 Sep 2020, 16:18

Inventories at cost and NRV

Post by Edpayasugo »

Hi,
Say you have inventories which cost £100, but the NRV falls to below this, say £80, you would mark down the value of the inventory by £20 and take this P&L hit, what happens if afterwards the NRV increases again above £100? Do you keep the inventory at £80, or mark it up to £100 (the cost), if you don't then you are actually valuing it at lower than the cost or NRV

Thanks.
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Marek Muc
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Re: Inventories at cost and NRV

Post by Marek Muc »

you can and should reverse write-offs, obviously the carrying amount cannot exceed original cost

see IAS 2.33:
A new assessment is made of net realisable value in each subsequent period. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write‑down is reversed (ie the reversal is limited to the amount of the original write‑down) so that the new carrying amount is the lower of the cost and the revised net realisable value. This occurs, for example, when an item of inventory that is carried at net realisable value, because its selling price has declined, is still on hand in a subsequent period and its selling price has increased.
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nauman
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Re: Inventories at cost and NRV

Post by nauman »

Well the original cost was 100 so you should write it back up to 100, provided the NRV is at 100 or above 100.
Edpayasugo
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Joined: 25 Sep 2020, 16:18

Re: Inventories at cost and NRV

Post by Edpayasugo »

Great, thanks.
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