### 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) false (under IFRS)?

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.

The company is limited to a \$0.3 million recovery, as this was the original write-down.

User Comment
pburkhard why is I. true?
peteSP it's not.. unlikely they will sell the stock for the .3 m w down, so only ii is correct
Dsatti ... I still don't get it??
Gleeder 0.3 must be increase costs on the income statement somewhere at the time of write down - so under COGS makes sense. That's the only logic I can see. Anyone else?
suzette as per the reading any write-down is included in COGS..
poomie83 So write down isnt included against impairement expense?
quanttrader change in cogs = - change in inventory

ie inventory write down of 0.3 mill implies cogs increases 0.3 mill
robbiecow Example:

Beg. Inv. = 500
Purchases = 1000
End. Inv. = 800
COGS = 1000 - 800 + 500 = 700

Let us now write down inventory by 200 and ending inventory will go to 600.
COGS = 1000 - 600 + 500 = 900
Yrazzaq88 It's false because we don't adjust for Fair Value until the inventory has been sold.
Davidrh Why can the reversal (of 0.5m) be greater than the original write-down of 0.3m?