How would you evaluate inventory write-downs for real estate held for sale in a downturn scenario?

• A. Value at cost regardless of NRV.
• B. Write down to zero always.
• C. Assess NRV vs cost; adjust carrying amount to NRV if necessary; consider future market price, costs to completion, and probability of sale.
• D. Ignore NRV and maintain original cost.

Answer: (C)

The main idea is to measure inventories held for sale 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 disposal. In a downturn, you must actively compare cost with NRV because market conditions may push NRV below cost. If NRV is lower, you adjust the carrying amount down to NRV and recognize the impairment loss in profit or loss. When evaluating NRV for real estate, include factors such as the current and anticipated future market prices, the remaining costs to complete any development or renovation, and the costs to sell (and the likelihood of a sale within a reasonable timeframe). For example, if the property’s cost is 1,000 and the NRV (estimated selling price minus completion and selling costs) is 800, you would write the asset down to 800 and record a 200 impairment. This approach prevents overstatement of assets and aligns carrying values with realizable cash flows.