A retailer buys inventory for 100. Prices fall, and it can now sell the goods for 70, with 10 of selling costs.
| Line item | Amount |
|---|---|
| Cost | 100 |
| Expected selling price | 70 |
| Selling costs | -10 |
| Net realisable value | 60 |
| Write-down to profit | -40 |
Illustrative case, round numbers.
Net realisable value is 60. Under IAS 2 inventory is carried at the lower of cost and net realisable value, so 40 comes out of profit this period.
No cash moves. The cash left when the goods were bought.
A write-down is the income statement catching up with a loss the cash already paid for.