IAS 2Chapter 6Lesson 1
Writing down to net realisable value: item by item, firm contracts and materials
Step 1 of 9Learning objectives
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When inventory will no longer recover its cost, it is written down to its net realisable value: estimated selling price less the costs of completion and the costs of sale. The lesson shows when to test (indicators), how to calculate, why the calculation is done item by item and never by category, and how to deal with events after the reporting period, inventory covered by a firm contract and materials held for production.
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Learning objectives
- Explain why the cost of inventory may not be recoverable and recognise the indicators that require net realisable value to be calculated.
- Calculate the net realisable value of finished goods and of work in progress, then the write-down item by item, or by group of similar items where appropriate.
- Assess the estimates at the reporting date, including events after the period that confirm conditions existing at the end of the period.
- Determine the net realisable value of inventory covered by a firm contract and decide whether raw materials must be written down.
- Record an inventory write-down.