Analysis of Inventories Flashcards
Significant risk can result from holding inventory. The cost of inventory may not be recoverable due to spoilage, obsolescence, or declines in selling prices.
IFRS states that inventories shall be measured at the lower of cost and net realizable value.
What is net realizable value?
Estimated selling price in the ordinary course of business, less the estimated costs necessary to make the sale and estimated costs to get the inventory in condition for sale.
In the event that the value of inventory declines below the carrying amount on the balance sheet, the inventory carrying amount must be written down to its net realizable value and the loss (reduction in value) recognized as an expense on the income statement (as cost of sales or separately).
What is inventory turnover ratio?
COGS / Inventory