Exhibit 5:
Century Chocolate Net Realisable Value Information for Black Licorice Jelly Beans
| 2018 | 2017 | |
|---|---|---|
| FIFO cost of inventory at 31 December (CHF) | 314,890 | 374,870 |
| Ending inventory at 31 December (Kilograms) | 77,750 | 92,560 |
| Cost per unit (CHF) | 4.05 | 4.05 |
| Net Realisable Value (CHF per Kilograms) | 4.20 | 3.95 |
Question
Ignoring any tax effect, the 2018 net realisable value reassessment for the black licorice jelly beans will most likely result in:
- an increase in gross profit of CHF 7,775.
- an increase in gross profit of CHF 11,670.
- no impact on cost of sales because under IFRS, write-downs cannot be reversed.
solution:
A is correct. Gross profit will most likely increase by CHF 7,775. The net realisable value has increased and now exceeds the cost. The write-down from 2017 can be reversed. The write-down in 2017 was 9,256 [92,560 × (4.05 – 3.95)]. IFRS require the reversal of any write-downs for a subsequent increase in value of inventory previously written down. The reversal is limited to the lower of the subsequent increase or the original write-down. Only 77,750 kilograms remain in inventory; the reversal is 77,750 × (4.05 – 3.95) = 7,775. The amount of any reversal of a write-down is recognised as a reduction in cost of sales. This reduction results in an increase in gross profit.
does every time we solve a reversal do we use the NPR from the previous year?