IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

Chapter 4 / Inv entories (lAS 2)

31

Required Vigilant LLC has approached you to compute the value of its inventory and the cost per unit of the inventory at March 31, 2006, September 30, 2006, and December 31, 2006, under the weighted-average cost method. Solution

Weighted– average cost per unit

Rate

Month Purchases/Sales/Balan ce

Valuation date

Amoullt 25,000

per unit

$250

units units

Jan 15

100 100

Purchases

Jan 3 1 Balance

Mar 10

150 units 250 units (150) units 100 units 300 units (170) units 130 units units

$300 $280 $280

Purchases

1i.QQQ 70000

Mat 10 Balance Mar 15 Sales Mar31 Balance Sep 30 Balance Dec 15 Sales Dec 31 Balance

ill.QQQ) $28000

$280.00

March 31, 2006

Sep 25 Purchases 200

$350

70000

$28.QQQ

$326.667

September 30, 2006

$326.667 (55 533)

$42 467

$326.667

December 31, 2006

8. NET REALIZABLE VALUE

8.1 Invento ries are written down to net realizable value (NRV) on the basis that assets should not be carried in excess of amount s likely to be realized from their sale or use. Write-down of invento– ries become s necessary for seve ral reasons; for example, invent ories may be damaged or become obso lete or their selling prices may have declined after year-end (or period- end ). 8.2 Inven tories are usually written down to their NRV on an item- by- item basis , but in certain conditions, also by a group of similar or related items. It is, however, not appropriate to mark down inventories by classification of inventories, such as finishe d goods, or all inventories in a geo– graphica l segment or industry. 8.3 NRV estimates are based on most reliable evidence of the inventori es' realizable amounts. They take into account price fluctuati ons or costs directly related to event s after the period-end, confirming condit ions that exis t at the perio d-end. Estimates of NRV also take into acco unt the reaso n or purpose for which inventories are held. For instance, NRV of a quantity of inventory be– ing held to satisfy firm sales contracts or service contracts are based on con trac t prices. 8.4 Inventories of raw materials and other supplies held for use in production of inventories are not written down below cost if the finished goods in which they will be used are expected to be sold at or above cost. However, when decrease in the price of raw material indicates that the cost of the finished goods exceeds net reali zable value, the materi als are written down to NRV. In such cases, the repl acement cost of the raw materials may be the best available measure of their NRV. 8.5 NRV is assessed in each successive period. If changes in economic circumstances warrant, earlier write-downs are reversed to make the new carryi ng amount equal to the lower of cost and the revised NRV. Facts Moonstruck Enterprises Inc. is a retailer of Italian furniture and has five major product lines: sofas, dining tables, beds, closets, and lounge chairs. At December 31, 200X, quantity on hand, cost per unit, and net realizable value (NRV) per unit of the product lines are as follows: Quanti ty Cost NRV Product line on hand per unit ($) per unit ($) Sofas 100 1,000 1,020 Dining tables 200 500 450 Beds 300 1,500 1,600 Closets 400 750 770 Lounge chairs 500 250 200