Page 14 - FINAL CFA I SLIDES JUNE 2019 DAY 8

LOS 28.g: Describe the measurement of inventory at
the lower of cost and net realisable value., p. 191 Session Unit 8:

28. Inventories
Action

IFRS Lower of Cost and NRV (Net NRV = Selling prices less estimated selling • Otherwise, write down (use valuation
realisation value) and completion costs. allowance a/c) and take loss to
Income statement
• Write up and gain to reduce COGS
• But you can never write up by more
than previous write down, otherwise
you violate ‘lower of cost of NRV’
tanties
US Allows LIFO or the Retail Market = replacement cost as long as
GAAP Method: Replacement Cost(RC) is less than NRV and
Lower of Cost or market greater that NRV less normal profit Similar action as above but does not
margin. allow reversals!

• If RC > NRV, then market is NRV

• If RC < NRV less normal profit margin,
then market is NRV minus normal
profit margin

or

Other than LIFO/Retail
Method:
Lower of Cost or NRV