Answer: limited to the amount of the original write-down.

## Explanation Under IFRS (International Financial Reporting Standards), when inventory has been written down to its net realizable value in a prior period, and the circumstances that caused the write-down no longer exist, the write-down can be reversed. However, this reversal is **limited to the amount of the original write-down**. ### Key Points: 1. **IFRS Treatment**: IAS 2 (Inventories) allows reversal of inventory write-downs when there is clear evidence that the net realizable value has increased. 2. **Limitation**: The reversal cannot exceed the original write-down amount. The inventory cannot be carried at more than its original cost. 3. **Accounting Treatment**: The reversal is recognized as a reduction in cost of sales in the period in which the reversal occurs. 4. **US GAAP Difference**: Under US GAAP, reversal of inventory write-downs is **prohibited**. Once inventory is written down, it cannot be written back up even if market conditions improve. ### Why Option C is Correct: - The question specifically asks about the reversal of an inventory write-down, and option C correctly states that it is "limited to the amount of the original write-down." - Option A ("prohibited") would be correct under US GAAP but not under IFRS. - Option B ("recognized as an increase in cost of sales") is incorrect because the reversal actually reduces cost of sales, not increases it. ### Accounting Entry for Reversal: ``` Debit: Inventory (to increase inventory value) Credit: Cost of Sales (to reduce expense) ``` This treatment ensures that inventory is not overstated and that the reversal only restores the inventory to its original cost basis.

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