CERTYNEX IFRS ACADEMY

Atelier Norvane manufactures city bikes and racing frames. At the year-end, it holds two raw materials. Aluminium (cost €60,000, replacement cost €52,000) is used in the city bikes, whose expected unit cost is €400 for a net realisable value of €520. Carbon fibre (cost €90,000, replacement cost €75,000) is used in the racing frames, whose expected unit cost is €1,300 for a net realisable value of €1,150; the carbon fibre inventory is sufficient for 100 frames. For carbon fibre, management considers replacement cost to be the best available measure of its net realisable value. Which conclusion should be reached?

Write down aluminium by €8,000 and carbon fibre by €15,000, i.e. €23,000 in total.

Do not write down aluminium and reduce carbon fibre to €75,000, i.e. a write-down of €15,000.

Write down neither material, since raw materials are never written down before being incorporated into a finished product.

Write down nothing, since the margin expected on the city bikes offsets the loss expected on the racing frames.