IFRS Essentials

IAS 2 INVENTORIES

1 SCOPE

IAS 2 prescribes the accounting treatment for inventories. Inventories comprise the following assets (IAS 2.6):

• Assets held for sale in the ordinary course of business (i.e. finished goods and merchandise).
• Assets in the process of production for such sale (work in progress).
• Assets to be consumed in the production process or in the rendering of services (materials and supplies).

As soon as revenue is recognized for service contracts (IAS 18.20–18.28), it is included in the scope of IAS 18 (IAS 2.8) and is generally accounted for according to the stage of completion. This applies similarly to construction contracts within the meaning of IAS 11.

Among others, financial instruments are not included in the scope of IAS 2 (IAS 2.2).

2 MEASUREMENT

2.1 Measurement at Recognition

At recognition, inventories are measured at cost (IAS 2.9 and 2.1), which comprises all costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition (IAS 2.10).

The costs of purchase include the purchase price, import duties and other taxes that are not recoverable, and transport, handling, and other costs directly attributable to the purchase. Trade discounts, rebates, and other similar items are deducted in determining the costs of purchase (IAS 2.11).

When an arrangement contains a financing element (e.g. a difference between the purchase price for normal credit terms and the amount paid), the element is not ...