How to Write Down Inventory to Net Realizable Value Under IAS 2
Reducing the carrying value of inventory when NRV falls below cost due to price drops or obsolescence.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Inventory Write-Down Expense | Expense (+) | 6,000.00 | - |
| Merchandise Inventory | Asset (-) | - | 6,000.00 |
💡 Accountant's Note
Under IAS 2, inventory must be reported at the lower of cost or NRV. This is especially relevant for fashion, electronics, and perishable goods where prices can drop quickly.
Practitioner & Systems Framework
💻 ERP Architecture
Run a monthly NRV review comparing the current expected selling price (less selling costs) to the inventory unit cost for each active SKU. Where NRV < cost, calculate the write-down per unit × quantity on hand and post to Inventory Write-Down Expense. Under IFRS, NRV write-downs are reversible if market prices recover (up to original cost) — track write-down history per SKU for reversal assessment.
⚠️ Audit Flags
NRV assessments are highly judgmental — auditors will challenge the expected selling price assumptions, especially for items where the planned selling price has been reduced post-period-end. Items sold at a loss after year-end are evidence that NRV was below cost at year-end, requiring a write-down that management may have avoided. The write-down must capture all items where NRV < cost, not just selected SKUs.
📄 Required Documentation
NRV calculation per SKU (expected selling price minus selling costs, compared to unit cost), pricing evidence (POS data, markdown schedules, competitor prices), management approval for write-down, subsequent sale data confirming NRV estimates, and IFRS IAS 2 NRV assessment memo.
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Expert Analysis by Qusai Ahmad
General Accountant Supervisor & IFRS Specialist
Specialized in SAP GUI automation and Middle Eastern tax compliance. Building digital tools for the next generation of finance leaders.