*Source SNG Grant Thornton
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Some entities may be experiencing supply chain disruptions. Real estate companies with inventories of under construction properties could be impacted by a fall in property prices. Seasonal inventories and perishable products might be exposed to the risk of loss due to damage, contamination, physical deterioration, obsolescence, changes in price levels or other causes. Companies would need to assess whether, on their reporting date, an adjustment is required to the carrying value of their inventory to bring them to their net realisable value in accordance with the principles of IAS 2 ‘Inventories’. Estimating net realisable value in such volatile market conditions may also be a challenge, on account of the uncertainties presented by the pandemic.
If an entity’s production level is abnormally low (eg due to a temporary shutdown of production), it may need to review its inventory costing to ensure that unallocated fixed overheads are recognised in profit or loss in the period in which they are incurred (ie “excess capacity” should be expensed rather than being added to the cost of inventory).