My head is spinning right now and I can’t quite figure this out… There is a statement in q24 EOC solutions on inventory that states “the amount of any reversal of a write-down is recognized as a reduction in the cost of sales”
Can someone please walk me through the rational behind this? does this relate to the “ending inventory = beginning inventory + purchases - COGS” equation?
your help is much appreciated!
help! Anyone…?
Reading #29 Inventories Question #24
In 2008 Inventory was written down to its Net Realizable Value of 3.95 as under IFRS reporting Inventories are recorded at the lower of cost or Net Realizable Value. The loss in 2008 was in the amount of $9256 (4.05 Cost Per Unit - 3.95 Net Realizable Value Multiplied by Ending Inventory of 92,560)
In 2009, Inventory improved as the NRV was measured at 4.20, however under IFRS reporting, the carrying value of the Inventory cannot exceed its original cost (which in this case is $4.05) thus the $9250 that was originally lost in 2008 will be recognized in the income statement as a gain of $9250.