Wiley International Trends in Financial Reporting under IFRS: Including Comparisons with US GAAP, Chinese GAAP, and Indian GAAP

CHAPTER 35

INVENTORIES (IAS 2)

1. OBJECTIVE

1.1 This Standard prescribes the basis of determining and accounting for inventories as an asset until the related revenues are recognized.

2. SYNOPSIS OF THE STANDARD

This Standard, which provides guidance on the valuation of inventories and their consequent write-down as an expense and the accounting treatment to be adopted on the related revenues being recognized, is summarized next.

2.1 The Standard applies to all inventories except in the cases that are governed by the provisions of other specific Standards (International Accounting Standards [IAS] 11, Construction Contracts; IAS 32, Financial Instruments: Presentation; IAS 39, Financial Instruments: Recognition and Measurement; IAS 41, Agriculture; and International Financial Reporting Standard [IFRS] 7, Financial Instruments—Presentation, Recognition and Measurement and Disclosures.

2.2 Inventories are defined as assets that are either held for sale in the ordinary course of business or are used to produce goods for sale or are consumed in the production process or in the rendering of services.

2.3 Inventories shall be valued at lower of cost and net realizable value.

2.3.1 Cost shall include the purchase cost and all other costs that are incurred to bring the inventories to their present location and condition. Examples of other costs are import duties and taxes that are not recoverable from the tax authority and transport and handling charges.

2.3.2 Costs shall not include