Under International Financial Reporting Standards (IFRS), inventory is valued at the lower of cost and:
A) Replacement cost.
B) Net realizable value.
C) Net realizable value reduced by a normal profit margin.
D) None of these answer choices are correct.

Question

Quizplus · Accepted Answer

Under IFRS, inventory must be valued at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, minus the estimated costs of completion and the estimated costs necessary to make the sale. This means that inventory must be written down to reflect any decline in value below its cost, and the net realizable value serves as a ceiling or maximum value for inventory. Option A is incorrect because replacement cost is not used under IFRS to value inventory. Option C is incorrect because reducing the net realizable value by a normal profit margin is not a required valuation method under IFRS. Option D is incorrect because there are answer choices that are correct.

Under International Financial Reporting Standards (IFRS), Inventory Is Valued at the Lower