"write down" of Inventory is recognized in COGS?

CFA Level I FRA
#1

Hi,

In the notes, the “write up” of Inventory reduces COGS in I/S. Is the 'write down" of Inventory also recognized in COGS, or in Infrequent or Unusual account?

#2

I Think inventory write down will be recognise as a loss in the statement of comprehensive income

#3

Nope: it goes through the income statement.

A mnemonic for OCI is “PUFE” (pronounced "poofy):

  • _ P _ension costs that haven’t been amortized
  • _ U _nrealized gains/losses on available-for-sale securities
  • _ F _oreign currency gains/losses under the current-rate method for foreign subsidiaries
  • _ E _ffective portion of a cash-flow hedge

I believe that the rule for inventory write-downs is that if they’re material they’re considered unusual or infrequent, so they appear below operating income but above net income, and if they’re immaterial they’re lumped into COGS. However, I’d check that with the curriculum to make sure.

#4

In most cases , write-downs get reported to COGS. Same thing for write-ups. Remember that write-ups are not allowed under GAAP. And even under IFRS, there’s a limit to how much you can write-up.

#5

Ok. Thans.

#6

Ok. Thanks.