An item of inventory cost £12,000. It can be sold for £15,000 after incurring further selling costs of £4,200. At what amount should it be included in inventory under IAS 2?
Answer and explanation
Correct answer: C. £10,800
- Step 1: IAS 2 measures inventory at the lower of cost and net realisable value.
- Step 2: NRV = selling price less costs to sell = £15,000 - £4,200 = £10,800.
- Step 3: NRV of £10,800 is lower than cost of £12,000, so inventory is written down to £10,800.
Answer
£10,800.
Why not the others: £12,000 is cost, which is higher than NRV, so it overstates the asset. £15,000 is the selling price, which ignores the costs to sell and ignores the lower-of rule. £7,800 deducts the selling costs from cost instead of from the selling price.
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