Dear All
Kindly feed me back regarding the reversal of any previuos writedown
that had been made in a previuos period. Is it possible to reverse a
wirte down for inventory made in 2007 to be reversed in 2008
Noting that I couldn’t reach any specific paragraph in the standards
relatated to this issue.
and how this could be made via entries.

But I think if it is possible to reverse wirtdown made in 2007 to be
reversed in 2008, it may distort results over accounting periods.

Thanks in advance for your prompt reply.

Hesham,
The writedown to inventory in 2007 impact is ultimately on the
retained earnings brought forward to 2008. Therefore the reversal
should be a credit to R/earnings.

Hope this help.

William

Hi Hesham,

As I am sure you are aware that IAS 2 requires inventories to be
carried at lower of cost(original cost) and net realisable value(NRV).
According to para 34 of IAS 2, ” The amount of any reversal of any
write-down of inventories, arising from the increase in net realisable
value, shall be recognised as a reduction in the amount of inventories
recognised as an expense in the period in which the reversal occurs” .

This means that the reversal is limited to the previous write down. For example:

In 2007 the cost of inventories was 100 and the NRV was 80 resulting
in a 20 write down. Then, in 2008 circumstances changes and some how
the NRV was 150. The reversal of the write down will be limited to 20.

In this case the journal entry will be made in 2008 as follows:

Dr Inventories 20

Cr Reversal of write down ( Income Statement) 20

Shivan

Hi,

Do you mean that you are attempting to reverse a previously recognized
write down on inventories?

IAS 2 clearly states as follows.

IAS 2

Recognition as an Expense

34 When inventories are sold, the carrying amount of those
inventories shall be recognised as an expense in the period in which
the related revenue is recognised. The amount of any write-down of
inventories to net realisable value and all losses of inventories
shall be recognised as an expense in the period the write-down or loss
occurs. The amount of any reversal of any write-down of inventories,
arising from an increase in net realisable value, shall be recognised
as a reduction in the amount of inventories recognised as an expense
in the period in which the reversal occurs.

It is reversed to cost of sales (income statement).

It doesn’t distort the results per se, unless the write down has been
fraudulently performed or is an error.

Also, you are required to state down the reasons behind the reversal
of the written down amounts.

Also, if in doubt, follow the rules under IAS 8:

This is a “change in accounting estimate” and is therefore reversed to
the 2008 financial performance (Income Statement).

Note that retrospective adjustments (credits/debits to retained
earnings) are limited only to 3 situations:

- Changes in accounting policy

- Error

I hope this helps.

Regards,

Alan

The value of Stock should be increased and the balance in Profit &
Loss Account will also increase. This can be shown as prior period
items.

Thanks

B K

As per IFRS, this is not tobe shown as prior period items.
In fact, under IFRS there is no concept of prior period.

Dear all,

Can you send me all IAS documents so that I can print and have for
future reference.

Thanks

Hi Setota,

Please login to iasplus.com (by Deloitte), you will find wealth of
information about IFRS/IAS.

Thanks,

KK

Thanks for your reply, but if we acted by adjusting the retained
earnings balance, we would treate it either as a change in accounting
principleas or as a prior period errors, wich is not the case. As all
amounts debited or credited dirctly to the RE (other than the
shareholders transactions) are either change in policies or prior
errors.

Lets decide first if it is possible to reverse a previuos inventory
write down or not
then we should decide to what account should the credit amount be
recorded. I think that if it is possible to reverse it, the credit
should be made to the same account (loss due to decline in the market
value of inventor),
Kindly feed me back.

Respected all,

I think it cannot be a prior period adjustment as the reversal took
this year, the increase-in-realisable-value event happened this year
due to which the reversal happened, so effect should be in current
year p/L account and inventory balance of balance sheet.

JATINDER

Write off to the inventory made last year cannot be reversed this year
until there is a proper justification to do so as it would affect the
P&L of LY as well as True and Fair Presentation of Financial
Statements, however if reversal is resorted that can be done thru
Prior Period Adjustment/Exps. account.

Regards
CMA

Dear All
A lot of thanks for your support. I can conclude that the reversal
should be recognizedin the crrent year P&L not as a prior period
adjustment.The enrty may be
Allowance due to decline in inventory value
Gain/loss due to decline in the inventory valueThanks

Related posts:

1. Refund of earned income How to treat the income which was earned and accounted...
2. Conversion of foreign currency expenses with local currency Dear I am in a financial organization. Our company pays...

Related posts brought to you by Yet Another Related Posts Plugin.