Up to cost, never above it — under both frameworks

NRV is reassessed every period

A write-down is not a permanent scar. IAS 2 requires NRV to be reassessed at each reporting date, and when the circumstances that caused the write-down no longer exist — or NRV has clearly risen because of a change in economic conditions — the write-down is reversed. Section 3031, which the AcSB converged with IAS 2, takes the same position. There is no IFRS-versus-ASPE difference on this point. The framework that forbids reversal is US GAAP, and its rule is a standard distractor on the midterm precisely because so many textbooks are American.

The reversal has two limits, and both are where the marks are.

Limit 1 — the cap is original cost

The new carrying amount is the lower of cost and the revised NRV. A reversal can restore what was written off; it can never carry inventory above its original cost, however high NRV climbs. In IAS 2's words, the reversal is limited to the amount of the original write-down.

Limit 2 — only units still on hand

Units already sold carried their written-down cost into COGS when they left. Nothing is reversed for them. The reversal applies to the written-down units still in inventory at the reassessment date.

Worked example — Kettle Creek, one period on

At 30 June Kettle Creek wrote item A down from $12 to $10 and item C from $8 to $7 (L2.2). By 30 September the retailer's price war has ended.

Item A. NRV has recovered to $13 — above the original cost of $12. 300 of the 400 cases remain. Applying the cap: the carrying amount can rise to MIN(13, 12) = $12, not $13, so the reversal is (12 − 10) × 300 = $600. The uncapped figure, (13 − 10) × 300 = $900, is the wrong answer the question is built to catch.

Item C. NRV has recovered only partway, to $7.50, and 500 units remain. MIN(7.50, 8) = 7.50, so the reversal is (7.50 − 7) × 500 = $250.

Total reversal $850. Because the write-down went to cost of goods sold, the reversal comes back through the same account — IAS 2 describes it as a reduction of the inventory expense in the period of reversal:

Dr Inventory                 850
    Cr Cost of Goods Sold           850

The period's COGS falls by $850. It is not a gain. Gain on Inventory Recovery does not exist under either framework; a reversal restores an asset to a measurement it should have, it does not create income from nowhere. Retained Earnings is untouched — this is a current-period measurement, not a prior-period correction.

A partial recovery, in one line

Boreal Bikes wrote 800 saddles down from $15 to $12; NRV is now $14 and 600 are on hand. MIN(14, 15) = 14; reversal (14 − 12) × 600 = $1,200. Dr Inventory 1,200 / Cr Cost of Goods Sold 1,200.

Disclosure

IFRS requires the amount of any write-down and any reversal to be disclosed, together with the circumstances that led to the reversal — the reader is entitled to know whether COGS fell because sales were cheap to make or because an earlier estimate was undone.