Inventory losses
Inventory is measured at the lower of cost and net realisable value under IAS 2. A write-down to net realisable value and inventory losses are recognised as an expense in the period they occur. If the circumstances causing a write-down change, a reversal is limited to the original write-down and reduces inventory expense. Physical shortages and valuation write-downs should be identified separately.
Worked example
Goods cost $1,000 and are expected to sell for $800; estimated selling costs are $50. Net realisable value is $750, so write inventory down by $250.
Common mistake
Using a fixed asset’s recoverable amount test for inventories, or reversing a write-down above original cost.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Supporting | September 2026–June 2027 |