How do I apply LCNRV at the individual vs group inventory level?

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AcadiFi · Accepted Answer

Both IFRS and US GAAP require LCNRV (or LCM under LIFO/retail-GAAP) applied at the item level when practical, with group/total application only acceptable when items are similar and interrelated.

Nordwind Textiles individual approach:
- Cotton yarn: cost $400K vs NRV $350K → write down $50K
- Synthetic blend: cost $280K vs NRV $320K → no write-down (held at cost)
- Wool: cost $180K vs NRV $160K → write down $20K
- Total write-down: $70K

Group approach (if allowed):
- Total cost: $860K
- Total NRV: $830K
- Write-down: $30K

The group approach understates the write-down by $40K because gains on synthetic blend offset losses elsewhere — but unrealized gains never support held inventory. Conservative LCNRV prohibits this offsetting except for truly similar items produced for the same market.

```mermaid
flowchart TD
    A[SKU-Level LCNRV] --> B[Cotton -50K]
    A --> C[Synthetic 0]
    A --> D[Wool -20K]
    B --> E[Total -70K]
    D --> E
```

NRV definition: estimated selling price - completion costs - selling costs. For raw materials, NRV may reference replacement cost if finished goods remain profitable.

US GAAP nuance: LIFO and retail-inventory firms use LCM (market = replacement cost bounded by NRV ceiling and NRV-minus-normal-profit floor). Non-LIFO firms use LCNRV — same as IFRS. Write-down hits COGS (usually) or a separate loss line; it cannot be reversed under GAAP but can be under IFRS.

How do I apply LCNRV at the individual vs group inventory level?

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