Question

Smith Inc purchased some inventory in 2011 for $500. In 2012, the market value or net realizable value was $200 and Ouyang Inc wrote down the inventory value to $200. In 2013, it was determined that the market value or net realizable value was $1,000. Ouyang Inc's inventory balance will most likely be(under IFRS and U.S. GAAP separately):

IFRS: $200; U.S. GAAP: $200;

IFRS: $200; U.S. GAAP: $500;

IFRS: $1,000; U.S. GAAP: $500;

IFRS: $500; U.S. GAAP: $500;

IFRS: $500; U.S. GAAP: $200;

Answer 1

Under U.S. G.A.A.P., write-downs taken to reduce inventories to the lower of cost or market are not reversed for subsequent increases in value. Since inventory was written down to $200 in 2012, hence it will be considered as of $200 in the year 2013

Under I.F.R.S., write-downs taken to reduce inventories to the lower of cost or net realizable value are reversed for subsequent increases in value. Hence, in 2013, inventory will be valued on the basis of lower of cost or net realizable value i.e. lower of $500 or $1,000. Hence, inventory will be valued at $500

Hence, correct option is (e)

IFRS: $500; U.S. GAAP: $200

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