Comparison of two amounts

Learning objectives

• Analyse the comparison of carrying amounts (lower of, impairment) in the functional currency using the relevant exchange rates.L3, L4

Normative references

• IAS 21 §24The carrying amount of an item is determined in accordance with other relevant Standards (for example, cost or fair value for property, plant and equipment under IAS 16); when it is determined in a foreign currency, it is then translated into the functional currency in accordance with IAS 21.
• IAS 21 §25Carrying amount determined by comparing two amounts (inventories at the lower of cost and net realisable value under IAS 2; an asset with an indication of impairment at the lower of its carrying amount and recoverable amount under IAS 36) for a non-monetary item measured in a foreign currency: the cost or carrying amount, translated at the exchange rate at the date when that amount was determined, is compared with the net realisable value or recoverable amount, translated at the exchange rate at the date when that value was determined (for example, the closing rate). An impairment loss may therefore arise in the functional currency without arising in the foreign currency, or vice versa.
• IAS 21 §26When several exchange rates are available, the entity uses the rate at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date (wording amended by the 2023 amendment, para. 60L).

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

1 question

• Dupré holds inventories with a cost of {cost_usd}, recorded at 90,000 euros at the rate of 0.90 euro. At the closing date their net realisable value is {nrv_usd} and the closing rate is 0.88 euro. Reminder of the standard: the cost is translated at the rate of its recording date and the net realisable value at the closing rate, before the comparison in euros. Calculate the lower of the two amounts and the write-down to recognise.L3