IFRS Notes

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.