Reassessment and reversal of write-downs

Learning objectives

• Explain that net realisable value is reassessed in each period and that the write-down is reversed, limited to the amount of the original write-down, when the circumstances that caused it no longer exist or when net realisable value increases.L2
• Calculate the reversal of the write-down and the new carrying amount (the lower of cost and the revised net realisable value).L2, L3
• Recognise the reversal as a reduction in the amount of inventories recognised as an expense.L2, L3

Normative references

• IAS 2 §33A new assessment of net realisable value is made in each subsequent period. When the circumstances that previously caused inventories to be written down no longer exist, or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write-down is reversed (the reversal is limited to the amount of the original write-down) so that the new carrying amount is the lower of cost and the revised net realisable value. Example: an item still held in inventory, written down because of a decline in its selling price, whose price subsequently increases.

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

12 questions

• Lumen wrote down at the end of 20X1 a batch of desk lamps, still in inventory, after a fall in their selling price. In 20X2, the selling price of this model rises markedly following a change in economic circumstances. True or false: a write-down of inventories recognised in a prior period can never be reversed.L2
• Which of the following situations, observed at the year-end at a garden equipment distributor, leads to the reversal of a write-down of inventories?L2
• The management accountant of Pivelle is preparing an internal memo on reversals of inventory write-downs. Select the correct statements.L2
• At the end of 20X1, Carrelia reduced a batch of ceramic tiles, with a cost of {cost}, to its net realisable value of {carrying_before}. At the end of 20X2, the batch is still in inventory; the recovery of the construction market has pushed prices up and the revised net realisable value of the batch is {revised_nrv}. Compute the reversal of the write-down and the new carrying amount of the batch.L2
• A batch of garden furniture purchased for {cost} by the retailer Jardiflor was carried in the statement of financial position at the end of 20X1 at {carrying_before}, after a write-down caused by a rainy summer. One year later, the batch has not been sold, but strong seasonal demand makes it possible to estimate its net realisable value at {revised_nrv}. What amounts does Jardiflor retain for the reversal and for the carrying amount of the batch at the end of 20X2?L2
• At the end of 20X1, the distributor Optivue wrote down three batches of spectacle frames. At the end of 20X2, the situation is as follows: the Azur batch (cost {azur_cost}, carrying amount {azur_carrying}) has a revised net realisable value of {azur_nrv}; the Brume batch (cost {brume_cost}, carrying amount {brume_carrying}) has a revised net realisable value of {brume_nrv}; the Corail batch was entirely sold during 20X2. The increases in net realisable value result from a change in economic circumstances. Compute, item by item, the total reversals for 20X2 and the total carrying amount of the batches still held.L3
• The fabric trader Textilor wrote down its rolls of linen and silk last year, as they had become hard to sell. This year, fashion is turning back to natural materials and the rolls, still in the warehouse, are finding buyers again. Linen: cost {linen_cost}, opening carrying amount {linen_carrying}, net realisable value at the year-end {linen_nrv}. Silk: cost {silk_cost}, opening carrying amount {silk_carrying}, net realisable value at the year-end {silk_nrv}. Determine the total reversals for the year and the total carrying amount of the two product lines at the year-end.L3
• Horlogia holds an inventory of diving watches with a cost of {cost}, reduced at the end of 20X1 to {carrying_before}. At the end of 20X2, the watches are still in inventory and the rise in market prices brings their net realisable value to {revised_nrv}. Record the entry at the end of 20X2.L2
• Tonnellerie Sablière keeps in inventory oak barrels that cost it {cost}. Overproduction had led to carrying them at {carrying_before} at the previous year-end. This year, a shortage of stave wood drives prices up and the net realisable value of the barrels reaches {revised_nrv}. Record the effect of this development at the year-end.L3
• At the end of 20X1, Brivane reduced an inventory of solar panels with a cost of €90,000 to €70,000, after a collapse in selling prices. At the end of 20X2, the panels are still in inventory; a new public support scheme has clearly pushed prices back up, and net realisable value is estimated at €98,000. Management is hesitating between several treatments. Which one complies with IAS 2?L3
• In 20X3, Pavane reverses €4,000 of a write-down recognised in 20X2 on rugs still in inventory, as their net realisable value has recovered. How is this reversal presented?L3
• The Mélèze sawmill wrote down an inventory of planks in 20X1 after a fall in timber prices. At the end of 20X2, the planks are still in inventory and there is clear evidence of an increase in their net realisable value because of changed economic circumstances. True or false: the write-down is reversed, limited to its original amount.L2