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IFRS Notes

1043


Reversal of inventory write down

IAS 2 allows the reversal of previous write down
IAS 2-pr33
If NRV recovers in the later period,
write down is
reversed.
The reversal cannot be greater than the original write-down.

U.S. GAAP does not allow the reversal of previous write down
asc 330-10-35-14
If inventory value is written down to lower amount,
the
reduced amount becomes new cost for subsequent periods.

In subsequent periods, inventories are valued
at the lower or
new cost or market.
(1) If new cost < market, carrying amount = new cost
(2) If new cost > market, carrying amount = market


Example:
At December 31, 2010
Inventory cost = $500
Market = $450
NRV = $450

U.S. GAAP
Inventory carrying amount = low of cost or market = $450

New cost = $450

IAS 2
Inventory carrying amount = low of cost and NRV = $450

At June 30, 2011
Market = $520
NRV = $520

U.S. GAAP
Inventory carrying amount = low of
new cost or market = $450
No reversal is allowed.

IAS 2
Since NRV was recovered from $450 to $520,
reversal of previous write down is allowed up to the original write down.
Original write down = $50
NRV increase = $70

Reversal is allowed up to $50
.
 

   
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