Under IAS 2, write-down to NRV is required when NRV falls below cost.

• A. Only if NRV rises above cost.
• B. Only if NRV falls below cost.
• C. NRV is never considered.
• D. NRV always exceeds cost.

Answer: (B)

Under IAS 2, inventories are measured at the lower of cost and net realizable value (NRV). NRV is the estimated selling price in the ordinary course of business minus estimated costs of completion and selling. Therefore, when NRV falls below cost, a write-down is required to bring the carrying amount down to NRV. For example, if cost is 100 and NRV is 80, the inventory must be written down to 80. If NRV later increases, you may reverse part of the write-down up to the amount of the original reduction, but you can’t report NRV above cost unless reversals are permitted. When NRV is higher than cost, no adjustment is needed.