All 5 Inventory Valuation (FIFO/LIFO/AVCO) questions
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What is the FIFO method of inventory valuation? How do FIFO, LIFO and AVCO differ during rising prices? Work out closing inventory using AVCO. Is LIFO permitted under IFRS, and why?
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Financial Accounting › Inventory Valuation (FIFO/LIFO/AVCO)

What does 'lower of cost and net realisable value' mean (IAS 2)?

Intermediate

Answer

Inventory is valued at the lower of what it cost and its net realisable value (expected selling price less costs to sell), so losses are recognised early.
Cost 100, NRV 80 -> value at 80; write down 20
Real-world example Obsolete or damaged stock is written down to what it can actually fetch.
All 5 Inventory Valuation (FIFO/LIFO/AVCO) questions