|
Objective of IAS 2<=
span
style=3D'font-size:9.0pt;font-family:Arial;color:black'>
The
objective of IAS 2 is to prescribe the accounting treatment for
inventories. It provides guidance for determining the cost of inventori=
es
and for subsequently recognising an expense,
including any write-down to net realisable =
value.
It also provides guidance on the cost formulas that are used to assign
costs to inventories.
Scope
Invent=
ories
include assets held for sale in the ordinary course of business (finish=
ed
goods), assets in the production process for sale in the ordinary cours=
e of
business (work in process), and materials and supplies that are consume=
d in
production (raw materials). [IAS 2.6]
Howeve=
r, IAS
2 excludes certain inventories from its scope: [IAS 2.2]
Also, =
while
the following are within the scope of the standard, IAS 2 does not appl=
y to
the measurement of inventories held by: [IAS 2.3]
- producers of agricultu=
ral
and forest products, agricultural produce after harvest, and miner=
als
and mineral products, to the extent that they are measured at net =
realisable value (above or below cost) in
accordance with well-established practices in those industries. Wh=
en
such inventories are measured at net realisab=
le
value, changes in that value are recognised
in profit or loss in the period of the change. <=
/li>
- commodity brokers and dealers w=
ho
measure their inventories at fair value less costs to sell. When s=
uch
inventories are measured at fair value less costs to sell, changes=
in
fair value less costs to sell are recognised<=
/span>
in profit or loss in the period of the change. <=
/li>
Fundamental Principle of IAS 2<=
/span>
Invent=
ories
are required to be stated at the lower of cost and net realisable
value (NRV). [IAS 2.9]
Measurement of Inventories
Cost s=
hould
include all: [IAS 2.10]
- costs of purchase (inc=
luding
taxes, transport, and handling) net of trade discounts received
- costs of conversion
(including fixed and variable manufacturing overheads) and
- other costs incurred in
bringing the inventories to their present location and condition <=
o:p>
Invent=
ory
cost should not include: [IAS 2.16-2.18]
- abnormal waste
- storage costs
- administrative overhea=
ds
unrelated to production
- selling costs
- foreign exchange diffe=
rences
arising directly on the recent acquisition of inventories invoiced=
in
a foreign currency
- interest=
cost when inventories=
are
purchased with deferred settlement terms.
The st=
andard
cost and retail methods may be used for the measurement of cost, provid=
ed
that the results approximate actual cost. [IAS 2.21-22]
For
inventory items that are not interchangeable, specific costs are attrib=
uted
to the specific individual items of inventory. [IAS 2.23]
For it=
ems
that are interchangeable, IAS 2 allows the FIFO or weighted average cost
formulas. [IAS 2.25] The LIFO formula, which had been allowed prior to =
the
2003 revision of IAS 2, is no longer allowed.
The sa=
me
cost formula should be used for all inventories with similar
characteristics as to their nature and use to the enterprise. For group=
s of
inventories that have different characteristics, different cost formulas
may be justified. [IAS 2.25]
Write-Down to Net Realisable
Value
NRV is=
the
estimated selling price in the ordinary course of business, less the
estimated cost of completion and the estimated costs necessary to make =
the
sale. [IAS 2.6] Any write-down to NRV should be re=
cognised
as an expense in the period in which the write-down occurs. Any reversal
should be recognised in the income statemen=
t in
the period in which the reversal occurs. [IAS 2.34] <=
/p>
Expense Recognition=
IAS 18, Revenue,
addresses revenue recognition for the sale of goods. When inventories a=
re
sold and revenue is recognised, the carrying
amount of those inventories is recognised a=
s an
expense (often called cost-of-goods-sold). Any write-down to NRV and any
inventory losses are also recognised as an
expense when they occur. [IAS 2.34]
Disclosure
Requir=
ed
disclosures: [IAS 2.36]
- accounting policy for inventorie=
s.
- carrying=
amount, generally
classified as merchandise, supplies, materials, work in progress, =
and
finished goods. The classifications depend on what is appropriate =
for
the enterprise.
- carrying=
amount of any invento=
ries
carried at fair value less costs to sell.
- amount of any write-down of
inventories recognised as an expense i=
n the
period.
- amount of any reversal of a =
writedown to NRV and the circumstances that =
led to
such reversal.
- carrying=
amount of inventories
pledged as security for liabilities.
- cost of inventories recognised as expense (cost of goods sold). =
IAS 2
acknowledges that some enterprises classify income statement expen=
ses
by nature (materials, labour, and so o=
n)
rather than by function (cost of goods sold, selling expense, and =
so
on). Accordingly, as an alternative to disclosing cost of goods so=
ld
expense, IAS 2 allows an enterprise to disclose operating costs recognised during the period by nature of th=
e cost
(raw materials and consumables, labour
costs, other operating costs) and the amount of the net change in
inventories for the period). This is consistent with IAS 1, Presenta=
tion
of Financial Statements, which allows presentation of expenses=
by
function or nature.
|
=
|
![](3D"IAS2INVENTORIES_files/image001.gif")