Scribd
Upload
42 views14 pages

VALMETH

IAS 2 provides guidance on determining the cost of inventories and the subsequent recognition as an expense. It applies to all inventories except those covered by other standards. Inventories are assets held for sale, in production for sale, or materials used in production. Cost includes all costs to bring inventories to their present condition and location, such as purchase costs, conversion costs, and other costs directly related to acquisition. Inventories must be measured at the lower of cost or net realizable value, and specific identification or weighted average cost methods must be used. Financial statements must disclose accounting policies, carrying amounts, write-downs, and reversals related to inventories.

Uploaded by

ryanneestelle.clemente
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
42 views14 pages

VALMETH

IAS 2 provides guidance on determining the cost of inventories and the subsequent recognition as an expense. It applies to all inventories except those covered by other standards. Inventories are assets held for sale, in production for sale, or materials used in production. Cost includes all costs to bring inventories to their present condition and location, such as purchase costs, conversion costs, and other costs directly related to acquisition. Inventories must be measured at the lower of cost or net realizable value, and specific identification or weighted average cost methods must be used. Financial statements must disclose accounting policies, carrying amounts, write-downs, and reversals related to inventories.

Uploaded by

ryanneestelle.clemente
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 14

INTERNATIONAL

ACCOUNTING
STANDARDS 2
OBJECTIVE OF IAS 2
The objective of IAS 2 is to prescribe the accounting
treatment for inventories. It provides guidance for
determining the cost of inventories and for
subsequently recognising an expense, including any
write-down to net realizable value. It also provides
guidance on the cost formulas that are used to
assign costs to inventories.
SCOPE
Applies to all inventories except:
- work in progress on construction and service contracts (IAS 11);
- financial instruments (IAS 32 and IFRS 9); and
- biological assets arising from agricultural activity (IAS 41).

Does not apply to the measurement of inventories held by:


- producers of agricultural and forest products, and minerals and mineral products,
that are measured at net realizable value in accordance with well-established
practices in those industries; and
- commodity broker-traders who measure their inventories at fair value less costs to
sell.
DEFINITIONS
Inventories are assets:
Held for sale in the ordinary course of business; or
In the process of production for such sale; or
In the form of materials or supplies set for consumption during the
production process or in the provision of services.

Net realizable value (NRV) - is the estimated selling price less the estimated
costs of completion and the estimated costs necessary to make the sale.

Fair value – the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the
measurement date.
MEASUREMENT OF
INVENTORIES
COST OF INVENTORIES
All costs incurred in bringing the inventories to their present location
and condition, including the costs of purchase and conversion.

PURCHASE COSTS
The purchase costs of inventories encompass the purchase price,
import duties, and other taxes, alongside transport and handling fees.
Other costs directly attributable to the acquisition of finished goods
or materials are also included. Trade discounts, rebates, and similar
items are deducted in establishing the purchase costs.
MEASUREMENT OF
INVENTORIES
CONVERSION COSTS
Conversion costs incorporate three main components under
IAS 2.12:
Costs directly linked to units of production, such as direct
materials used.
Systematic allocation of variable production overheads.
Systematic allocation of fixed production overheads.
MEASUREMENT OF
INVENTORIES
OTHER COSTS
Examples of costs excluded from the cost of inventories and recognised
as expenses in the period in which they are incurred are:
Abnormal amounts of wasted materials, labour or other production
costs.
Storage costs, unless necessary for the production process prior to
another production stage.
Administrative overheads that do not contribute to bringing
inventories to their present location and condition.
Selling costs.
TECHNIQUES FOR THE
MEASUREMENT OF COST
An entity may use techniques such as the standard cost
method, the retail method or most recent purchase price
for measuring the cost of inventories if the result
approximates cost. Standard costs take into account
normal levels of materials and supplies, labour, efficiency
and capacity utilisation.
COST FORMULA
The cost of inventories of items that are not ordinarily
interchangeable and goods or services produced and segregated for
specific projects shall be assigned by using specific identification of
their individual costs.

The cost of inventories shall be assigned by using the first-in, first-out


(FIFO) or weighted average cost formula. An entity shall use the same
cost formula for all inventories having a similar nature and use to the
entity. For inventories with a different nature or use, different cost
formulas may be justified.
NET REALISABLE VALUE
The cost of inventories may not be recoverable if those inventories are
damaged, if they have become wholly or partially obsolete, or if their
selling prices have declined.
Estimates of net realisable value are based on the most reliable
evidence available at the time the estimates are made, of the amount
the inventories are expected to realize.
It also take into consideration the purpose for which the inventory is
held.
RECOGNITION AS AN
EXPENSE
When inventories are sold, the carrying amount of those inventories
shall be recognised as an expense in the period in which the related
revenue is recognised. The amount of any write-down of inventories
to net realisable value and all losses of inventories shall be recognised
as an expense in the period the write-down or loss occurs. The amount
of any reversal of any write-down of inventories, arising from an
increase in net realisable value, shall be recognised as a reduction in
the amount of inventories recognised as an expense in the period in
which the reversal occurs.
DISCLOSURE
The financial statements shall disclose:
The accounting policies adopted in measuring inventories, including
the cost formula used
The total carrying amount of inventories and the carrying amount in
classifications appropriate to the entity
The carrying amount of inventories carried at fair value less costs to
sell
The amount of inventories recognised as an expense during the period
The amount of any write-down of inventories recognised as an
expense in the period
DISCLOSURE
The financial statements shall disclose:
The amount of any reversal of any write-down that is recognised as a
reduction in the amount of inventories recognised as expense in the
period
The circumstances or events that led to the reversal of a write-down
of inventories
The carrying amount of inventories pledged as security for liabilities
THANK YOU

You might also like