Where the net realisable value of inventory falls below cost, IAS 2 Inventories, requires that:
A) the inventory continue to be carried in the Statement of Financial Position at cost;
B) the inventory be written down to net realisable value;
C) no adjustment be made, but the difference between net realisable value and cost be disclosed in the notes to the financial statements;
D) the difference be added to the carrying amount of the inventory.

Question

Quizplus · Accepted Answer

IAS 2 requires that inventory be measured at the lower of cost and net realisable value. When the net realisable value of inventory falls below cost, the inventory must be written down to its net realisable value. This means that the carrying amount of the inventory must be reduced to the amount that the inventory is expected to fetch upon sale, less any costs to complete and sell the inventory. Therefore, option B is the best choice.

Where the Net Realisable Value of Inventory Falls Below Cost