Lower of Cost or NRV

A firm determines that inventory of manufactured goods with a cost of €10 million has a net realizable value of €9 million and writes down its carrying value to this amount. One period later, the firm determines that the net realizable value of this inventory has increased to €11 million. Under IFRS, the carrying value of this inventory:

A)

must remain valued at €9 million.

B)

may be revalued up to €11 million.

C)

may be revalued up to €10 million.

I think I’m overthinking this, how is A wrong? If inventory is held at lower of cost orNRV, it would first be held at $9M since $9M

That would mean for IFRS you can write up inventory on to the previous high carrying amount so there would be no change since it was carried at $9M instead of $10M. What am I missing?

Correct answer C

Just FYI here is the answer description:

Explanation

Under IFRS, inventory is measured at the lower of cost or net realizable value. Inventory that has been written down can later be revalued upward if its net realizable value recovers, but only to the extent that reverses the writedown (i.e., no higher than cost). Under U.S. GAAP, inventory that has been written down may not be revalued upward.

When the NRV increases to €11 million, the lower of cost and NRV is €10 million, not €9 million.

Note, too, that the values are in EUR, not USD. :wink:

Initially, the firm has inventory with a cost of €10 million and a net realizable value (NRV) of €9 million, and because IFRS states that inventory must be measured at the lower of cost or NRV, the firm writes their inventory down to €9 million. In the next period, the firm determines that the NRV is now €11 million, but the cost remains at €10 million, which is why the the carrying value of the inventory is revalued up to €10 million (as the €10 million cost is lower than then new €11 million NRV).

Hope this was helpful and good luck studying!