Chartered Financial Analyst Level 1
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An analyst gathers the following information (in € thousands) about an electronics manufacturing company's inventory: Cost of ending inventory: 3,600 Net realizable value: 3,300 Current replacement cost: 3,200 Net realizable value less a normal profit margin: 3,100 The inventory (in € thousands) is carried on the balance sheet at:
Explanation:
Option C is correct because under IFRS, inventories are measured at the lower of cost and net realizable value (NRV). In this case:
The lower of the two values is €3,300, which is the amount at which the inventory should be carried on the balance sheet.
Option A is incorrect because it assumes the company reports under US GAAP and uses the LIFO inventory valuation method, where the lower limit of market value is net realizable value less a normal profit margin (€3,100). However, this does not apply under IFRS.
Option B is incorrect because it also assumes US GAAP and uses the LIFO method, where market value is defined as current replacement cost (€3,200) subject to upper (NRV) and lower (NRV less profit margin) limits. This is not relevant under IFRS.