Under normal circumstances, raw materials are not written down below cost if the finished products they make will be sold at a profit. However, if the finished products are expected to be sold at a loss, how should the raw materials be valued?

Correct answer: B) They should be written down to their net realizable value (often indicated by replacement cost).

Explanation

IAS 2 specifies that if a decline in the price of materials indicates that the cost of the finished products will exceed NRV, the materials are written down to NRV, and the replacement cost of the materials may be the best available measure of their NRV.