Acme Enterprises, a hypothetical company, manufactures computers and prepares its financial statements in accordance with IFRS. In 2008, the cost of ending inventory was €5.2 million but its net realizable value was €4.9 million. The current replacement cost of the inventory is €4.7 million. This figure exceeds the net realizable value less a normal profit margin. In 2009, the net realizable value of Acme’s inventory was €0.5 million greater than the carrying amount.
1. What was the effect of the write-down on Acme’s 2008 financial statements? What was the effect of the recovery on Acme’s 2009 financial statements?
2. Under U.S. GAAP, what would be the effects of the write-down on Acme’s 2008 financial statements and of the recovery on Acme’s 2009 financial statements?
3. What would be the effect of the recovery on Acme’s 2009 financial statements if Acme’s inventory were agricultural products instead of computers?