Where the net realisable value of inventory falls below cost, AASB 102 Inventories, requires that:
A) the inventory continue to be carried in the Statement of Financial Position at cost;
B) the inventory be written down to net realisable value;
C) no adjustment be made, but the difference between net realisable value and cost be disclosed in the notes to the financial statements;
D) the difference be added to the carrying amount of the inventory.

Question

Quizplus · Accepted Answer

AASB 102 requires that inventory be written down to net realisable value if this value falls below cost. This is because the inventory is deemed to have lost value and should not be carried on the Statement of Financial Position at its original cost. Option A is incorrect as it suggests that the inventory should continue to be carried at cost, which is not in line with the accounting principles for inventories. Option C is incorrect as disclosure alone is not sufficient for proper accounting treatment. Option D is also incorrect as adding the difference to the carrying amount of inventory would result in overstating its value, which is not appropriate.

Where the Net Realisable Value of Inventory Falls Below Cost