Lower of cost and net realisable value

Learning objectives

• Explain that inventories are measured at the lower of cost and net realisable value.L1
• Calculate the carrying amount of an inventory item by comparing its cost with its net realisable value.L1, L2, L3

Normative references

• IAS 2 §9Inventories are measured at the lower of cost and net realisable value.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

17 questions

• Under IAS 2, inventories are measured at the lower of cost and net realisable value.L1
• When the net realisable value of an inventory item exceeds its cost, the entity remeasures the item at its net realisable value and recognises a gain.L1
• Ombrelia holds a batch of parasols with a cost of EUR 800 and a net realisable value of EUR 950. At what amount is this batch included in inventories?L1
• Vitralis is manufacturing a glass roof whose cost incurred at the reporting date amounts to EUR 1,200. Once completed, it can be sold for EUR 1,300; the remaining costs of completion are estimated at EUR 150 and the selling costs at EUR 50. At what amount is this glass roof in progress measured at the reporting date?L2
• Which statements about the measurement of inventories under IAS 2 are correct? (several answers possible)L2
• Menuisor makes custom staircases. At the reporting date, a staircase in progress has a cost incurred of {cost}. Once completed, it will be sold for {selling_price}; the estimated costs of completion amount to {completion_costs} and the estimated selling costs to {selling_costs}. Compute the net realisable value of the staircase and the amount at which it is measured in inventories.L2
• The Sylvebois workshop is finishing a solid oak table intended for sale in its showroom. The accumulated cost of the table is {cost}. Its expected selling price is {selling_price}. Finishing costs of {completion_costs} (varnish and labour) remain to be incurred, and the sales agent will earn a commission of {selling_costs} on the sale. Determine the net realisable value and the amount of the table in inventories.L2
• The Cyclarde shop bought an electric bicycle for {cost}. At the reporting date, it expects to sell it for {selling_price}, with delivery and the salesperson's commission amounting to {selling_costs}. No costs of completion are expected. Compute the net realisable value of the bicycle and its amount in inventories.L1
• Domélec, a distributor of household appliances, holds three unrelated lots of goods at the reporting date; according to the facts of the case, no grouping is appropriate. Lot R: cost {cost_r}, estimated selling price {price_r}, estimated selling costs {sell_r}. Lot S: cost {cost_s}, estimated selling price {price_s}, estimated selling costs {sell_s}. Lot T: cost {cost_t}, estimated selling price {price_t}, estimated selling costs {sell_t}. No costs of completion are to be incurred. Compute the total amount of inventories at the reporting date and the total write-down.L3
• The Aérotech group manufactures cabin equipment. At the reporting date, it holds a passenger seat in progress and a completed cabin panel, two separate items that the facts of the case do not allow to be grouped. Seat in progress: cost incurred {cost_w}, estimated selling price once completed {price_w}, estimated costs of completion {completion_w}, estimated selling costs {sell_w}. Completed panel: cost {cost_f}, estimated selling price {price_f}, estimated selling costs {sell_f}. What is the total amount of these inventories in the statement of financial position, and what write-down must be recognised?L3
• The wholesaler Rouelibre holds two models of city bicycles, each measured separately according to the facts of the case. Alto model: {units_a} units, unit cost {unit_cost_a}, estimated unit selling price {unit_price_a}, estimated unit selling costs {unit_sell_a}. Brio model: {units_b} units, unit cost {unit_cost_b}, estimated unit selling price {unit_price_b}, estimated unit selling costs {unit_sell_b}. Compute the total amount of the bicycles in inventories and the write-down to be recognised.L3
• While reviewing Céramiq's inventories, you find that a batch of tiles with a cost of EUR 5,000 has been recorded at EUR 5,400, its net realisable value, the difference of EUR 400 having been recognised as income. Which conclusion should be drawn?L3
• Horlogerie Vasselin holds a batch of watches from a past collection, with a cost of {cost}. Their estimated selling price in the ordinary course of business is {selling_price}, and the estimated costs necessary to make the sale (resellers' commissions) amount to {selling_costs}. Calculate the net realisable value of the batch and the amount of the write-down.L1
• At the reporting date, Charpentes Valdor holds a steel frame in the course of production, on which costs of {cost_incurred} have been incurred. Once completed, it is expected to be sold for {selling_price}. Estimated costs of completion of {completion_costs} remain to be incurred, and delivery and installation at the customer's site, borne by Valdor, will cost {selling_costs}. Determine the net realisable value of the work in progress and any write-down.L2
• At the reporting date, Sports Altitude holds three unrelated items that do not meet the conditions for grouping (case data): skis (cost {ski_cost}, net realisable value {ski_nrv}), tents (cost {tent_cost}, net realisable value {tent_nrv}) and GPS watches (cost {gps_cost}, net realisable value {gps_nrv}). Calculate the total write-down and the carrying amount of the three items after the write-down.L2
• Atelier Brunhilde manufactures furniture. At the reporting date, its inventories comprise three distinct, unrelated products. Finished lamps: cost {lamp_cost}, estimated selling price {lamp_price}, selling costs {lamp_selling_costs}. Finished tables: cost {table_cost}, estimated selling price {table_price}, selling costs {table_selling_costs}. Sideboards in progress: cost incurred {cabinet_cost}, estimated selling price once completed {cabinet_price}, costs of completion {cabinet_completion}, selling costs {cabinet_selling_costs}. Calculate the total write-down and the total carrying amount of these inventories.L3
• Ferlune manufactures cast-iron radiators. At the year-end, the market price of the pig iron it holds in inventory has fallen. Select the correct statements on the measurement of this inventory of materials.L3