IAS 2 · Workpapers (Step 4 of 5)
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Net realisable value test, write-down and reversal
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- AI-assisted draft
- Reviewed by
- Not reviewed — human review required
- Status
- Published
Objective of the workpaper
Estimate net realisable value item by item from the most reliable evidence, taking into account the purpose for which the inventory is held, compare it with cost, determine the additional write-down or the reversal for the period and record the entries.
12 sections · 27 blocks · 6 calculations · 2 entries
- IAS 2 §9
- IAS 2 §28
- IAS 2 §29
- IAS 2 §30
- IAS 2 §31
- IAS 2 §32
- IAS 2 §33
Work this workpaper as a mission
Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.
- Closing: net realisable value, firm contract, materials and reversalOpen the mission · Urban bicycles under contract
- Closing: net realisable value, firm contract, materials and reversalOpen the mission · Other Urban bicycles
- Closing: net realisable value, firm contract, materials and reversalOpen the mission · Trail bicycles
- Closing: net realisable value, firm contract, materials and reversalOpen the mission · Damaged Kids bicycles
- Professional file: inventory closing of a manufacturer-distributor of apple productsOpen the mission · Compote under contract
- Professional file: inventory closing of a manufacturer-distributor of apple productsOpen the mission · Other compote
- Professional file: inventory closing of a manufacturer-distributor of apple productsOpen the mission · Mislabelled bottles
- Professional file: inventory closing of a manufacturer-distributor of apple productsOpen the mission · Other juice bottles
- Professional file: inventory closing of a manufacturer-distributor of apple productsOpen the mission · Dried apricots
- Professional file: inventory closing of a manufacturer-distributor of apple productsOpen the mission · Dried figs
10 instances from the cases: the calculations and entries below are run by the calculation engine.
- File and entity
- Closing: net realisable value, firm contract, materials and reversal
- Case tasks documented here
- How do you split the inventories for the net realisable value test?
- Calculate the net realisable value of each item.
- Determine the measurement of each item and the total of the inventories tested.
- Calculate the write-downs required at the reporting date.
- Calculate the reversal of the write-down of the Trail bicycles.
- Record the closing entries.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Fulfilment of firm sales contracts
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
270,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
255,000
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
3,000
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
252,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
252,000
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
18,000
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
18,000
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
0
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Account Debit Credit Inventory write-down expense 18,000 Inventories 18,000 Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Write-down to net realisable value
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedPass
- The reversal entry is balancedNot evaluated
- Assets
- -18,000
- Liabilities
- 0
- Profit or loss
- -18,000
- OCI
- 0
- Equity
- -18,000
- File and entity
- Closing: net realisable value, firm contract, materials and reversal
- Case tasks documented here
- How do you split the inventories for the net realisable value test?
- Calculate the net realisable value of each item.
- Determine the measurement of each item and the total of the inventories tested.
- Calculate the write-downs required at the reporting date.
- Calculate the reversal of the write-down of the Trail bicycles.
- Record the closing entries.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
90,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
120,000
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
6,000
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
114,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
90,000
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
0
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
0
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
0
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Debit Inventory write-down expense ← Additional write-down for the period (write-down required − previous write-down, if positive) ; Credit Inventories ← Additional write-down for the period (write-down required − previous write-down, if positive)
Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Net realisable value at least equal to cost: no write-down
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedNot evaluated
- The reversal entry is balancedNot evaluated
- Assets
- 0
- Liabilities
- 0
- Profit or loss
- 0
- OCI
- 0
- Equity
- 0
- File and entity
- Closing: net realisable value, firm contract, materials and reversal
- Case tasks documented here
- How do you split the inventories for the net realisable value test?
- Calculate the net realisable value of each item.
- Determine the measurement of each item and the total of the inventories tested.
- Calculate the write-downs required at the reporting date.
- Calculate the reversal of the write-down of the Trail bicycles.
- Record the closing entries.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
200,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
195,000
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
5,000
Previous write-down still recognised on the item (0 if none)
Number
30,000
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
190,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
190,000
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
10,000
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
0
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
20,000
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
20,000
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Debit Inventory write-down expense ← Additional write-down for the period (write-down required − previous write-down, if positive) ; Credit Inventories ← Additional write-down for the period (write-down required − previous write-down, if positive)
Reversal of write-down
EntryRequired
Account Debit Credit Inventories 20,000 Inventory write-down expense (reversal) 20,000
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Reversal of a previous write-down
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedNot evaluated
- The reversal entry is balancedPass
- Assets
- 20,000
- Liabilities
- 0
- Profit or loss
- 20,000
- OCI
- 0
- Equity
- 20,000
- File and entity
- Closing: net realisable value, firm contract, materials and reversal
- Case tasks documented here
- How do you split the inventories for the net realisable value test?
- Calculate the net realisable value of each item.
- Determine the measurement of each item and the total of the inventories tested.
- Calculate the write-downs required at the reporting date.
- Calculate the reversal of the write-down of the Trail bicycles.
- Record the closing entries.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
6,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
5,000
Estimated costs of completion
Number
1,000
Estimated costs necessary to make the sale
Number
500
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
3,500
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
3,500
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
2,500
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
2,500
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
0
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Account Debit Credit Inventory write-down expense 2,500 Inventories 2,500 Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Write-down to net realisable value
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedPass
- The reversal entry is balancedNot evaluated
- Assets
- -2,500
- Liabilities
- 0
- Profit or loss
- -2,500
- OCI
- 0
- Equity
- -2,500
- File and entity
- Professional file: inventory closing of a manufacturer-distributor of apple products
- Case tasks documented here
- How do you organise the net realisable value test and which evidence do you use?
- Calculate the net realisable values and the write-downs item by item.
- Calculate the reversal of the write-down of the figs and their new carrying amount.
- Record the entries of the file.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Fulfilment of firm sales contracts
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
36,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
33,000
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
1,500
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
31,500
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
31,500
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
4,500
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
4,500
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
0
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Account Debit Credit Inventory write-down expense 4,500 Inventories 4,500 Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Write-down to net realisable value
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedPass
- The reversal entry is balancedNot evaluated
- Assets
- -4,500
- Liabilities
- 0
- Profit or loss
- -4,500
- OCI
- 0
- Equity
- -4,500
- File and entity
- Professional file: inventory closing of a manufacturer-distributor of apple products
- Case tasks documented here
- How do you organise the net realisable value test and which evidence do you use?
- Calculate the net realisable values and the write-downs item by item.
- Calculate the reversal of the write-down of the figs and their new carrying amount.
- Record the entries of the file.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
88,800
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
155,400
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
7,400
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
148,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
88,800
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
0
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
0
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
0
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Debit Inventory write-down expense ← Additional write-down for the period (write-down required − previous write-down, if positive) ; Credit Inventories ← Additional write-down for the period (write-down required − previous write-down, if positive)
Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Net realisable value at least equal to cost: no write-down
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedNot evaluated
- The reversal entry is balancedNot evaluated
- Assets
- 0
- Liabilities
- 0
- Profit or loss
- 0
- OCI
- 0
- Equity
- 0
- File and entity
- Professional file: inventory closing of a manufacturer-distributor of apple products
- Case tasks documented here
- How do you organise the net realisable value test and which evidence do you use?
- Calculate the net realisable values and the write-downs item by item.
- Calculate the reversal of the write-down of the figs and their new carrying amount.
- Record the entries of the file.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
9,840
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
10,200
Estimated costs of completion
Number
1,800
Estimated costs necessary to make the sale
Number
600
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
7,800
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
7,800
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
2,040
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
2,040
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
0
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Account Debit Credit Inventory write-down expense 2,040 Inventories 2,040 Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Write-down to net realisable value
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedPass
- The reversal entry is balancedNot evaluated
- Assets
- -2,040
- Liabilities
- 0
- Profit or loss
- -2,040
- OCI
- 0
- Equity
- -2,040
- File and entity
- Professional file: inventory closing of a manufacturer-distributor of apple products
- Case tasks documented here
- How do you organise the net realisable value test and which evidence do you use?
- Calculate the net realisable values and the write-downs item by item.
- Calculate the reversal of the write-down of the figs and their new carrying amount.
- Record the entries of the file.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
164,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
280,000
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
12,000
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
268,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
164,000
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
0
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
0
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
0
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Debit Inventory write-down expense ← Additional write-down for the period (write-down required − previous write-down, if positive) ; Credit Inventories ← Additional write-down for the period (write-down required − previous write-down, if positive)
Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Net realisable value at least equal to cost: no write-down
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedNot evaluated
- The reversal entry is balancedNot evaluated
- Assets
- 0
- Liabilities
- 0
- Profit or loss
- 0
- OCI
- 0
- Equity
- 0
- File and entity
- Professional file: inventory closing of a manufacturer-distributor of apple products
- Case tasks documented here
- How do you organise the net realisable value test and which evidence do you use?
- Calculate the net realisable values and the write-downs item by item.
- Calculate the reversal of the write-down of the figs and their new carrying amount.
- Record the entries of the file.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
72,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
85,500
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
2,700
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
82,800
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
72,000
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
0
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
0
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
0
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Debit Inventory write-down expense ← Additional write-down for the period (write-down required − previous write-down, if positive) ; Credit Inventories ← Additional write-down for the period (write-down required − previous write-down, if positive)
Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Net realisable value at least equal to cost: no write-down
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedNot evaluated
- The reversal entry is balancedNot evaluated
- Assets
- 0
- Liabilities
- 0
- Profit or loss
- 0
- OCI
- 0
- Equity
- 0
- File and entity
- Professional file: inventory closing of a manufacturer-distributor of apple products
- Case tasks documented here
- How do you organise the net realisable value test and which evidence do you use?
- Calculate the net realisable values and the write-downs item by item.
- Calculate the reversal of the write-down of the figs and their new carrying amount.
- Record the entries of the file.
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
40,000
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
48,000
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
1,500
Previous write-down still recognised on the item (0 if none)
Number
12,000
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
46,500
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
40,000
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
0
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
0
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
12,000
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
12,000
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Debit Inventory write-down expense ← Additional write-down for the period (write-down required − previous write-down, if positive) ; Credit Inventories ← Additional write-down for the period (write-down required − previous write-down, if positive)
Reversal of write-down
EntryRequired
Account Debit Credit Inventories 12,000 Inventory write-down expense (reversal) 12,000
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Reversal of a previous write-down
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References
Checks and financial statement impact
- The outcome of the test is documentedPass
- The closing carrying amount is determinedPass
- Cost equals the closing carrying amount plus the write-down requiredPass
- The write-down entry is balancedNot evaluated
- The reversal entry is balancedPass
- Assets
- 12,000
- Liabilities
- 0
- Profit or loss
- 12,000
- OCI
- 0
- Equity
- 12,000
Inputs
InputsItem tested or group of similar items (description, quantity, condition)
TextRequired
One instance per item, or per group of similar or related items where grouping is appropriate (para. 29). For a quantity held under firm contracts and an excess, use two instances (para. 31).
Purpose for which the inventory is held
ChoiceRequired
Sale at general selling prices / Fulfilment of firm sales contracts / Materials and supplies held for use in production
Cost of the item or group
NumberRequired
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts)
NumberRequired
Estimated costs of completion
Number
Estimated costs necessary to make the sale
Number
Previous write-down still recognised on the item (0 if none)
Number
Events after the end of the period affecting prices or costs
Text
Materials: expected selling price of the finished products compared with their cost, replacement cost of the materials
Text
If the finished products are expected to be sold at or above cost, enter as estimated price an amount at least equal to the cost of the material: no write-down (para. 32). Otherwise, replacement cost may serve as the measure of net realisable value.
Supporting evidence
EvidenceEvidence obtained and referenced (category, document reference)
EvidenceRequired
Estimating net realisable value
AnalysisIAS 2 §9IAS 2 §28IAS 2 §29IAS 2 §30
Matters examined
ChecklistRequired
- Measurement at the lower of cost and net realisable value
- Indicators that cost may not be recoverable: damage, whole or partial obsolescence, decline in selling prices, increase in estimated costs of completion or sale
- Write-down assessed item by item
- Grouping limited to similar or related items of the same product line that cannot practicably be evaluated separately
- No write-down on the basis of a classification of inventory or of all the inventories of an operating segment
- Estimate based on the most reliable evidence available at the time the estimate is made
- Changes after the end of the period taken into account to the extent they confirm conditions existing at the end of the period
Grouping items is a documented judgement of the entity within the limits of paragraph 29; it is never imposed by the standard.
Firm contracts and materials
AnalysisIAS 2 §31IAS 2 §32
Specific situations examined
Checklist
- Estimate taking into consideration the purpose for which the inventory is held
- Quantity held to satisfy firm contracts: value based on the contract price
- Quantity in excess of the contracts: general selling prices
- Provisions on firm sales contracts in excess of inventory quantities or on firm purchase contracts: IAS 37
- Materials not written down below cost if the finished products are expected to be sold at or above cost
- Otherwise, materials written down; replacement cost may be the best available measure
New assessment and reversal
AnalysisIAS 2 §33
Conditions for the reversal
Checklist
- Net realisable value assessed again in each period
- Circumstances of the write-down no longer exist, or clear evidence of an increase because of changed economic circumstances
- Reversal limited to the amount of the original write-down
- New carrying amount is the lower of the cost and the revised net realisable value
Net realisable value, write-down and reversal
CalculationsIAS 2 §9IAS 2 §33
Net realisable value (estimated price − costs of completion − costs to sell)
CalculationRequired
Estimated selling price in the ordinary course of business (contract price for the quantity under firm contracts) ; − Estimated costs of completion ; − Estimated costs necessary to make the sale
Closing carrying amount (lower of cost and net realisable value)
CalculationRequired
Cost of the item or group ; Net realisable value (estimated price − costs of completion − costs to sell)
Write-down required at the end of the period (cost − net realisable value, if positive)
CalculationRequired
Cost of the item or group ; − Net realisable value (estimated price − costs of completion − costs to sell)
Additional write-down for the period (write-down required − previous write-down, if positive)
CalculationRequired
Write-down required at the end of the period (cost − net realisable value, if positive) ; − Previous write-down still recognised on the item (0 if none)
Decrease in the write-down required (previous write-down − write-down required, if positive)
Calculation
Previous write-down still recognised on the item (0 if none) ; − Write-down required at the end of the period (cost − net realisable value, if positive)
Reversal for the period (capped at the previous write-down)
Calculation
Previous write-down still recognised on the item (0 if none) ; Decrease in the write-down required (previous write-down − write-down required, if positive)
The reversal brings the carrying amount back to the lower of cost and the revised net realisable value, without exceeding the original write-down (para. 33). It is recognised only if the increase is clearly evidenced: document this in the reversal section.
Journal entries
EntriesWrite-down of inventories
EntryRequired
Debit Inventory write-down expense ← Additional write-down for the period (write-down required − previous write-down, if positive) ; Credit Inventories ← Additional write-down for the period (write-down required − previous write-down, if positive)
Reversal of write-down
EntryRequired
Debit Inventories ← Reversal for the period (capped at the previous write-down) ; Credit Inventory write-down expense (reversal) ← Reversal for the period (capped at the previous write-down)
Net realisable value estimates
JudgmentIAS 2 §29IAS 2 §30IAS 2 §31IAS 2 §32IAS 2 §33
Outcome of the test
JudgmentRequired
Net realisable value at least equal to cost: no write-down / Write-down to net realisable value / Reversal of a previous write-down / Materials not written down: finished products sold at or above cost
Rationale: facts relied on, analysis, alternative rejected
TextRequired
Conclusion
ConclusionClosing carrying amount by item, write-down or reversal for the period and entries
ConclusionRequired
Financial statement impact
FS impactImpact by caption, derived from the entries above (the Notes line refers to the disclosures)
TableRequired
Items passed to the inventories note
DisclosureIAS 2 §33
Items passed to the notes workpaper (“Inventories note”)
ChecklistRequired
- Amount of the write-down for the period
- Amount of the reversal for the period
- Circumstances or change in economic circumstances that led to the reversal
- Closing carrying amount of the item or group
Normative references
ReferencesParagraphs cited in this workpaper (verification status shown from the register)
References