Here is another problem? Thanks so much in advance, please help.
Why in this question answer can be “C”, since we can recognize revaluation surplus under IFRS under OCI and increase RE, right? But this answer A is considering only $20 credit.
Question CPA-04216
At the end of year 1, a company reduced its inventory cost from $100 to its net realizable value of $80.
As of the end of year 2, the inventory was still on hand and its net realizable value increased to $150.
Under IFRS, what journal entry should the company record for year 2 to properly report the inventory
value?
A. Debit inventory for $20 and credit expense for $20.
B. Debit inventory for $70 and credit expense for $70.
C. Debit inventory for $70, credit retained earnings for $50, and credit expense for $20.
D. Debit inventory for $20, debit expense for $30, and credit retained earnings for $50.
Explanation
Choice “A” is correct. Under IFRS, if a lower of cost or market writedown
has occurred and subsequently
the net realizable value of the inventory item increases, a recovery may be recorded to the extent of the
original writedown.
In this case, a $20 recovery is allowed to increase the inventory value back up to its
original cost of $100 and decrease the expense (original loss recorded), but the total increase of $70 is
not allowed as this would cause the inventory value to exceed its original cost.
.