IAS 2 - INVENTORY
Inventories
include
- Assets held for Sale in the ordinary
course of business (finished goods)
- Assets in the production process for sale
in the ordinary course of business (work in progress)
- Materials and supplies that are consumed
in production (raw materials)
IAS
2 excludes (Scoped out)
- Work in progress arising under
construction contracts (IFRS 15)
- Financial Instruments (IFRS 9)
- Biological assets (IAS 41)
Fundamental
Principle of IAS 2
Inventories are required to be stated at lower of Cost and Net Realisable Value (NRV)
Cost
includes:
- Costs of Purchase
- Costs of Conversion
- Other costs incurred in bringing the inventories
to their present location and condition
Inventory
cost should exclude
- Abnormal cost
- Storage cost
- Administrative Overheads unrelated to
production
- Selling costs
- Foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency
- Interest cost when inventories are purchased with deferred settlement terms
Cost
formulas
·
Are the inventories not interchangeable?
·
Are the goods/ services produced and
segregated for specific project?
IF THE ANSWER IS "YES", THEN APPLY "SPECIFIC COST"
IF THE ANSWER IS "NO", THEN APPLY "COST FORMULAS":
· FIFO
· Weighted Average
NET
REALISABLE VALUE [NRV]
It refers
to estimated selling price in the ordinary course of business, less the
estimated cost of completion and the estimated costs that are necessary to
achieve the sale.
NRV = Estimated Selling Price less Estimated costs of completion less Estimated Selling costs
NB:
If
NRV is less than cost, account for write down in Profit or Loss.
DISCLOSURE
- Accounting policy for inventory
- Carrying amount of any inventories
carried at Fair value less costs to sell
- Carrying amount of inventories pledged
as security
- Amount of any write-down of inventories
recognised as an expense in the period
- Amount of any reversal of a write-down
to NRV and the circumstances that led to it.
- Cost of inventories recognised as an expense