why inventory is taken at lower of cost or NRV?
ACCA Forums
FRIAS 2
Because that is the requirement of IAS 2.
That follows several concepts of framework.
Financial statements should be true and fair.
Initially inventory is recorded at cost.
But if Net realisable value (market value or selling price minus costs to sale) is lower then you should impair the inventory till that amount.
Otherwise your SoFP will show inventory at a value higher then the actual market value, which means it won't reflect the real state of affairs.
That follows several concepts of framework.
Financial statements should be true and fair.
Initially inventory is recorded at cost.
But if Net realisable value (market value or selling price minus costs to sale) is lower then you should impair the inventory till that amount.
Otherwise your SoFP will show inventory at a value higher then the actual market value, which means it won't reflect the real state of affairs.
Thanks...
Sign into reply to this topic.