US CMA Part 1 · Chapter 1 · Question 7 of 23
An inventory write-down recorded in a prior year is no longer needed because selling prices have recovered. How should the recovery be treated?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Reversal is required under IFRS, up to the original write-down, but prohibited under US GAAP
Explanation
Under IAS 2, a write-down is reversed, up to the amount of the original write-down, when the circumstances that caused it no longer exist. Under US GAAP the written-down amount becomes the new cost basis, so subsequent recoveries are not recognized.
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