As at 31st March, 2001 and 2002, no inventories were stated at net realizable value.
Inventory should never be carried at an amount greater than net realizable value, which may be defined as prospective selling price minus anticipated selling expenses.
It serves to reduce the accounts receivable to their net realizable value in the balance sheet, as shown by the following illustration...
The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
Thus, writing off an uncollectible account does not change the net realizable value of accounts receivable in the balance sheet.
The receivables, therefore, are not stated at estimated net realizable value.
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