Question

4. Judah Inc. prepares its financial statements under IFRS. On December 31, 20X8, Judah has inventory of manufactured goods with a cost of $720,000. The estimated selling cost of that inventory is $50,000 and its market value is $740,000. By January 31, 20X9, none of the inventory has been sold but its market value has increased to $810,000. Selling costs remain the same. Which of the following entries is most likely permissible under IFRS. How would you account for it under IFRS?

Answer 1

Under IFRS, no adjustment is required for the increase in market value of inventory if it is lower than the net realizable value.

Under IFRS, inventory is accounted for at the lower of cost and net realizable value. Net realizable value is the estimated selling price less the estimated selling costs.

In this case, the cost of the inventory is $720,000 and the estimated selling cost is $50,000, resulting in a net realizable value of $670,000. Since the market value of the inventory at the end of the reporting period is higher than the net realizable value, there is no impairment and no adjustment is required.

Therefore, there would be no entry required for the increase in market value of the inventory from $740,000 to $810,000 under IFRS.