Sword Limited had inventory amounting to €120,000 in its statement of financial position at 31 December 19X6. On 3 January 19X7, a fire in the company’s warehouse severely damaged this inventory. The inventory will now realize only €50,000.

Requirement — Indicate how this situation should be dealt with in order to comply with standard accounting practice. (Assume a financial year end of 31 December 19X6.)