International GAAP 2012: Generally Accepted Accounting Practice under International Financial Reporting Standards

Chapter 24

Inventories

1 Introduction

1.1 Objectives of inventory measurement

2 The Scope of IAS 2

2.1 Scope issues: IAS 2 or another IFRS

2.1.1 Core inventories – IAS 2 or IAS 16

2.1.2 Broadcast rights – IAS 2 or IAS 38

3 Measurement

3.1 What may be included in cost?

3.1.1 Storage and distribution costs

3.1.2 General and administrative overheads

3.1.3 Borrowing costs

3.1.4 Service providers

3.1.5 Forward contracts to purchase inventory

3.1.6 Drug production costs within the pharmaceutical industry

3.2 Cost measurement methods

3.3 Transfers of rental assets to inventory

3.4 Net realisable value

4 Real Estate Inventory

4.1 Classification of real estate as inventory

4.2 Costs of real estate inventory

4.2.1 Allocation of costs to individual units in multi-unit developments

4.2.2 Property demolition and operating lease costs

5 Recognition in Profit or Loss

6 Disclosure Requirements of IAS 2

1 Introduction

Under IFRS the relevant standard for inventories is IAS 2 – Inventories. The term ‘inventories’ includes raw materials, work-in-progress, finished goods and goods for resale, although the standard does not include all instances of these categories; some are covered by other standards, for example growing crops are covered by IAS 41 – Agriculture. This chapter deals only with the inventories within the scope of IAS 2. Long-term contracts and the associated work in progress are the subject of a separate standard, IAS 11 – Construction Contracts – which is dealt with in Chapter 25