How is inventory measured according to IAS 23?

Inventory measurement according to IAS 23 adheres to the principle of evaluating it at the lower of cost and net realizable value (NRV). This approach requires companies to recognize inventory at an amount that reflects its potential future economic benefit. Cost includes all expenditures directly attributable to bringing the inventory to its current condition and location. However, if the net realizable value, which represents the estimated selling price in the ordinary course of business minus the estimated costs of completion and the costs necessary to make the sale, falls below the cost, the inventory must be written down to that lower value. This prevents overstatement of inventory assets on the balance sheet and provides a more accurate representation of potential profits from selling that inventory.

The other options do not align with IAS 23 principles. Replacement cost, fair value, and historical cost do not account for the necessity of adhering to the lower of cost and NRV rule, which is integral to accurately presenting inventory value on financial statements.