Question

Inventory Information:

Historical Cost   $50,000

Replacement Cost   $42,000

Net realizable value less normal profit $37,000

Estimated Selling Price   $65,000

Estimated costs of complete   $12,000

Estimated cost to make sell $6,000

According to IFRS, what dollar amount should be written down for decline in inventory value? SHOW YOUR WORK

Answer 1

Calaculation of dollar amount that should be written down for decline in inventory value:

"The answer is  $3000"

Given

Estimated selling price = $65000

Estimated costs to complete = $12000

Estimated costs to make sell = $6000

That implies,

NET REALIZABLE VALUE(NRV)

= Estimated selling price - Estimated costs to complete and sell

= $65000 - ($12000+$6000)

= $65000 - $18000

= $47000

And given,

HISTORICAL COST = $5000

According to IFRS,

If Net realizable value(NRV) of inventory is less than Historical cost then the value of inventory should be wriiten down to NRV.

Here, NRV($47000) is less than Historical cost($50000), then the value of inventory should be written down to NRV,($47000)

Therefore,

Amount should be wriiten down

= $50000 - $47000

= $3000