CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

In 2014 the book value of a company's inventory was $5 million before a $0.3 million write-down was recorded. In 2015, the fair value of the company's inventory was $0.5 million greater than the carrying value. Which of the following statements is (are) correct (under U.S. GAAP)?

I. In 2014 the company's COGS would increase by $0.3 million due to the write-down.
II. In 2015 the company's COGS would decrease by $0.5 million due to the reversal.
III. In 2015 the company would record a $0.3 million recovery as a gain.
IV. In 2014 the company would record a $0.3 million loss due to the write-down.
A. I, III and IV
B. I and IV
C. I and II
Explanation: Reversal of a write-down is prohibited under U.S. GAAP.

User Contributed Comments 1

User Comment
teje I guess answers I refers to IFRS, as they only classify items on balance sheet as revenues and expenses, and a writedown would serve to increase COGS and answer IV refers to U.S. GAAP as they classify items as revenues, expenses, gains, and losses, with the writedown being classified as a loss.
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