Shake Company's inventory experienced a decline in value necessitating a write-down to lower of cost or net realizable value (LCNRV) of €230,000. This amount is material to Shake's income statement and the company follows IFRS. Where should Shake Company report this decline in value according to IFRS?
I. As a loss on the income statement.
II. As a separate component of other comprehensive income on the statement of comprehensive income.
III. As part of cost of goods sold on the income statement.
A) Shake must use I.
B) Shake must use I, II or III.
C) Shake must use I, or III.
D) Shake must use III.

Question

Quizplus · Accepted Answer

According to IFRS, when an inventory decline in value necessitates a write-down to lower of cost or net realizable value, it should be reported as a loss on the income statement (Option I) or as part of cost of goods sold on the income statement (Option III). As this amount is material to Shake's income statement, it should choose either I or III. The amount cannot be reported as a separate component of other comprehensive income on the statement of comprehensive income (Option II) because it does not meet the criteria for such treatment. Therefore, Shake must use I, or III, and as both choices available, the best option is C.

Shake Company's Inventory Experienced a Decline in Value Necessitating a Write-Down