# IAS 2 inventory write-down: entries, reversals and examples

> Learn IAS 2 inventory write-down with Saudi examples: calculate net realisable value, post balanced entries and reverse losses only for stock still on hand.

- Canonical page: https://accountery.app/learn/ias-2-inventory-write-down-reversal
- Language: English (en)
- Category: journal-entries
- Estimated reading time: 12 minutes
- Published: 2026-09-14
- Updated: 2026-09-14

## What does an IAS 2 inventory write-down actually change?

An IAS 2 inventory write-down reduces the recorded value of stock when the business can no longer recover its cost through sale. You may still have every unit on the shelf. The accounting question is whether the amount attached to those units remains supportable.

Imagine opening a year-end warehouse report and finding a slow-moving product marked “discount likely”. That comment tells you where to investigate; it does not tell you the loss. You need a selling-price estimate, the remaining completion work and the costs necessary to make the sale.

The [IFRS Foundation’s IAS 2 overview](https://www.ifrs.org/issued-standards/list-of-standards/ias-2-inventories/) explains the underlying comparison: inventory is measured at the lower of cost and net realisable value. Net realisable value is the expected ordinary-course selling price after estimated completion and necessary selling costs.

**First establish cost; then test recovery.** If you need help calculating the starting amount, use the separate guide to [inventory valuation methods](/learn/inventory-valuation-methods-ifrs). This article starts after that calculation and follows the adjustment through a later recovery.

The two businesses below are fictional Saudi retailers applying full IFRS to ordinary merchandise. All amounts are in Saudi riyals, and taxes are outside the examples. Quantities and ownership have already been confirmed. The account names are illustrative; the same logic can be mapped to your business’s account structure.

Keep a small worksheet beside you as you read. Give original cost and current carrying amount separate columns. That simple separation becomes particularly useful when part of an earlier write-down can be reversed.

## How do you build a usable net realisable value worksheet?

Start with the product code, location, quantity and reporting date. Then attach the cost record and evidence for the expected sale. A supplier invoice supports cost; it does not prove what customers will now pay. A management target is also different from a supported selling-price estimate.

For a damaged product, ask the warehouse team what must happen before delivery. Does it need repair, testing or replacement packaging? Ask the sales team which price applies to that condition and quantity. A price for one perfect display unit may not represent a batch of damaged cartons.

Use these worksheet columns:

- Confirmed units remaining and original cost per unit.
- Expected selling price per unit, with its evidence date.
- Remaining completion costs per unit.
- Costs necessary to make the sale per unit.
- Net realisable value, required carrying amount and proposed adjustment.

The [June 2021 IFRS Interpretations Committee agenda decision](https://www.ifrs.org/content/dam/ifrs/supporting-implementation/agenda-decisions/2021/costs-necessary-to-sell-inventories-jun-21.pdf) clarifies that necessary selling costs cannot automatically be restricted to incremental costs. Assess the particular business and inventory; the decision does not prescribe a universal percentage or require indiscriminate allocation of every overhead.

In your working file, explain why each included cost is necessary and how the amount was estimated. This makes a reviewer’s challenge answerable without rebuilding the calculation.

**Settle quantity differences before measuring this value adjustment.** If a count shows fewer units than the system, follow the [inventory count adjustment guide](/learn/how-to-handle-inventory-count-adjustment). Otherwise, the same missing goods might be included in both a quantity correction and a valuation loss. Our cases deliberately remove that complication.

## Worked example 1: IAS 2 inventory write-down at a Riyadh retailer

Nakhil Electronics in Riyadh holds 120 identical units on 31 December 2025. Each unit cost SAR 450. The products work, but damaged packaging and an older model designation have reduced the price customers will accept. The company has confirmed that all units belong to it and remain unsold.

For this batch, the supported selling price is SAR 420 per unit. Repacking and final testing will cost SAR 15 per unit. Management has assessed all necessary selling costs for the planned channel at SAR 25 per unit. These are complete case assumptions, not standard percentages for other retailers.

| Calculation | Per unit, SAR | 120 units, SAR |
|---|---|---|
| Original cost | 450 | 54,000 |
| Expected selling price | 420 | 50,400 |
| Remaining completion costs | 15 | 1,800 |
| Necessary selling costs | 25 | 3,000 |
| Net realisable value | 380 | 45,600 |
| Required write-down | 70 | 8,400 |

The calculation is SAR 420 less SAR 15 less SAR 25, giving SAR 380. Compare that amount with the SAR 450 cost: the shortfall is SAR 70 per unit. Multiplying by the 120 units gives a total write-down of SAR 8,400.

Notice how the two checks agree. The per-unit loss multiplied by quantity is SAR 8,400; total cost of SAR 54,000 less total net realisable value of SAR 45,600 is also SAR 8,400. A mismatch usually points to a quantity, unit-of-measure or spreadsheet-reference error.

The final inventory value is SAR 45,600, while the warehouse still reports 120 units. Writing off 19 units to approximate the monetary loss would corrupt the stock record. No products disappeared in this case.

Before moving on, change only the selling price to SAR 440. Net realisable value becomes SAR 400, so the loss falls to SAR 6,000. This quick sensitivity shows why an unsupported price estimate matters even when every formula is correct.

## How do you record the loss without losing the original cost?

For Nakhil’s actual SAR 8,400 loss, the simplified [journal entry](/glossary#journal-entry) reduces inventory directly. It records the loss at 31 December 2025, when the year-end measurement requires it, rather than waiting until the discounted sale happens.

| Account | Debit, SAR | Credit, SAR |
|---|---|---|
| Inventory write-down expense | 8,400 | 0 |
| Inventory | 0 | 8,400 |

The entry balances and takes inventory from SAR 54,000 to SAR 45,600. It does not record a payment. The estimated repacking and selling costs helped measure recovery; this entry does not treat those future costs as already paid or separately create a payable for them.

A business may instead use a separate inventory valuation allowance account to preserve gross cost in its accounts. In that presentation, the credit goes to the allowance and inventory is reported net. Use one consistent approach. Posting both a direct reduction and an allowance for the same batch would double the loss.

Even with the direct method, retain the SAR 54,000 original cost and SAR 8,400 adjustment in the supporting schedule. If your system shows only the revised SAR 380 unit amount, next period’s reviewer still needs a way to retrieve the SAR 450 original amount.

Give the posting a clear batch reference and attach the approved worksheet. A description such as “year-end adjustment” is hard to trace months later. “Nakhil older-model batch: 120 units, approved recovery assessment” tells the next accountant where to start.

## Worked example 2: how much can you reverse after some stock is sold?

Sahl Homeware in Jeddah provides a different case. At the end of 2025, it held 200 identical sets costing SAR 300 each. A supported net realisable value of SAR 240 required a SAR 60 reduction per set: SAR 12,000 altogether. Their carrying amount became SAR 48,000.

During early 2026, 80 sets were sold before market conditions improved. Using their adjusted carrying amount, the inventory cost released on those sales was 80 multiplied by SAR 240, or SAR 19,200. There were no other stock movements. The remaining 120 sets therefore carried SAR 28,800.

By 31 March 2026, new economic conditions support an expected selling price of SAR 355 for each remaining set. No completion work is required, and necessary selling costs are SAR 20 per set. The revised net realisable value is SAR 335. These conditions arose after the prior year end.

| Remaining-stock calculation | Amount, SAR |
|---|---|
| Original cost: 120 multiplied by 300 | 36,000 |
| Carrying amount before review: 120 multiplied by 240 | 28,800 |
| Revised net realisable value: 120 multiplied by 335 | 40,200 |
| Required carrying amount, limited to cost | 36,000 |
| Reversal for remaining stock | 7,200 |

The [IAS 2 text, paragraphs 33–34](https://www.ifrs.org/content/dam/ifrs/publications/pdf-standards/english/2021/issued/part-a/ias-2-inventories.pdf) requires reassessment and limits recovery to the earlier write-down, leaving inventory at the lower of cost and revised net realisable value. The reversal reduces inventory expense in the period of recovery.

| Account | Debit, SAR | Credit, SAR |
|---|---|---|
| Inventory | 7,200 | 0 |
| Inventory expense: reversal of write-down | 0 | 7,200 |

**Only the remaining stock supports this reversal.** SAR 12,000 would wrongly include reductions relating to the 80 sets already sold. SAR 11,400 would wrongly lift the remaining stock to SAR 40,200, above its SAR 36,000 cost.

The credit improves profit through lower expense in the [income statement](/glossary#income-statement); it is not customer revenue. For the sold-stock calculation, see [how cost of goods sold works](/learn/how-to-calculate-cogs).

As a separate alternative, if revised net realisable value were SAR 275 per remaining set, the required value would be SAR 33,000 and the reversal SAR 4,200. Do not post both alternatives.

## What should the reviewer reconcile and document?

For Sahl’s direct-reduction method, start the inventory movement schedule at SAR 48,000. Deduct SAR 19,200 for the goods sold and add the SAR 7,200 reversal. The result is SAR 36,000, matching 120 remaining sets at their original SAR 300 cost.

Build a second bridge for the earlier reduction. The opening SAR 12,000 relates to all 200 sets. Of that, SAR 4,800 belongs to the 80 sets sold, leaving SAR 7,200 attached to the 120 sets still held. The supported reversal removes that remaining reduction completely.

The SAR 4,800 is an analytical allocation within the schedule. Under this example’s direct method, it is not another reversal entry to post. The sale already removed the adjusted carrying amount of those units. Treating every schedule movement as a new posting would create a duplicate adjustment.

Agree the final schedule to the [general ledger](/glossary#general-ledger) and retain references to the stock report, original valuation, sales movement and new evidence. Ask a colleague to reproduce the two bridges without looking at your formulas. If the explanation depends on a hidden cell, improve the file before closing it.

IAS 2 paragraph 36 calls for disclosure of write-downs, reversals and the circumstances behind reversals, alongside other inventory disclosures. For this case, the reporting file should preserve the SAR 7,200 reversal and the evidence of improved selling conditions. A complete financial-statement note also needs the business’s other applicable inventory information; this batch schedule is only an input.

The sources linked here were checked on 14 September 2026. The detailed standard link is a historical issued edition, cross-checked with the current IFRS Foundation overview and the final selling-cost agenda decision.

## Which common mistakes should your review catch?

Most errors in these cases come from using the right rule on the wrong population. A correct reversal formula still gives the wrong answer if its quantity includes stock that has already left the warehouse.

- **Using selling price alone.** Nakhil expects SAR 420 per unit, but that is before the SAR 40 combined completion and selling costs. The recovery estimate is SAR 380.
- **Treating age as the loss amount.** “More than six months old” can help identify stock to investigate. It does not, by itself, justify a fixed loss percentage for every product.
- **Offsetting unrelated products.** A profitable new model should not hide a loss on an older one. IAS 2 paragraph 29 generally applies the test item by item, with limited grouping of similar or related items.
- **Reversing an entire old entry.** Sahl has 120 sets left, not the original 200. Rebuild the remaining-stock calculation before selecting the reversal amount.
- **Recording recovery above original cost.** The SAR 335 estimate does not permit Sahl to carry a SAR 300-cost set at SAR 335 under this measurement model.
- **Losing the posting history.** Keep the original cost, cumulative reduction and previous adjustments visible, even if the accounts use a direct credit to inventory.

Add one final question to your review: does the account balance tell the same story as the quantity report? In Nakhil’s case, 120 units remain at a lower amount. In Sahl’s case, 80 units have left and the remaining 120 recover to cost. Those are different stories, and the schedules should make the difference obvious.

## How can you practise the calculation and posting with Accountery?

Close the worked answers and rebuild each case on a blank page. Start with quantity, then calculate the required ending amount, then derive the entry as the difference from the amount already recorded. This order makes it harder to confuse the original loss with the later reversal.

For Nakhil, explain the SAR 8,400 adjustment in one sentence without using the phrase “because the standard says so”. A useful answer connects the SAR 450 recorded cost with the SAR 380 estimated net recovery for each of 120 units.

For Sahl, write the unit movement first: 200 opening sets less 80 sold leaves 120. Then answer three questions: what was their original cost, what is currently recorded, and what supported amount should be recorded now? Check that your entry reaches SAR 36,000 without changing the number of sets.

When you want to practise the posting mechanics, open [Accountery’s practice exercises](/practice) and choose an available inventory or journal-entry exercise that matches your learning need. Use these worked cases as a separate worksheet; they do not imply that a dedicated exercise for this exact scenario is available.

Finish by changing just one assumption and predicting the direction of the result before recalculating. Try a higher selling cost in the first case or only a partial recovery in the second. If you can explain both the amount and the reason for the entry, you are ready to review someone else’s calculation with more confidence.

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