IAS 2 : Inventories – summary (2024)
IAS 2 provides guidance for determining of cost of inventories and the subsequent recognition of the cost as an expense including any write-down to net realizable value.
IAS 2 Applies to all inventories except:
work in progress on construction and service contracts (this is treated as per IAS 11);
financial instruments (these are treated as per IAS 32 and IFRS 9); and
biological assets arising from agricultural activity (this is treated as per IAS 41).
In December 1993: IAS 2 Inventories, which had originally been issued by the International Accounting Standards Committee.
In April 2001 the International Accounting Standards Board (Board) adopted IAS 2 Inventories.
In December 2003 the Board issued a revised IAS 2 as part of its initial agenda of technical projects.
IAS 2 defines inventories as assets which are:
• held for sale in the ordinary course of business, such as Merchandise.
• in the process of production for such sales, such as Production Supplies.
• in the form of materials or supplies to be consumed in the production- such as Work in Process or rendering of services - such as Finish Goods.
Inventories should be measured at lower cost and net realizable value.
• there are only two exceptions or two types of inventories to which this rule does not apply.
• number one: producers of agricultural or forest products mineral and mineral products and they measure inventories at net realizable value.
• and Other is commodity dealers and brokers who measure their inventories at fair value less cost to sell.
Cost should include:
• costs of purchase (including 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.
IAS 2 permits certain measurement techniques - the first one is the standard cost, this method is mostly used by the producers of large amounts of small items.
the second measurement technique permitted by IAS 2 is a retail method and it is often used by retailers who have a large turnover of inventories with similar profit margins.
In Other Cases, we can use either first in first out - FIFO method or weighted average method. The LIFO method is no longer allowed in IAS 2. last in the first out it is permitted a US GAAP but not in IFRS.
we should use the same cost formula for all inventories with similar nature and use it for the entity.
now let's take a look at net realizable value. it is estimated selling price in the ordinary of the business less estimated cost of completion less estimated costs necessary to make a sale.
So if the net realizable value is lower than the cost then we need to write down our inventories to their net realizable value.
IAS 2 also prescribes when and how to recognize the inventories in the profit or loss as an expense.
#facts
#accountingprinciples
#news
#accountingrules
#education
#accountingstandards
#business
#motivation
#economy
#job
#bookkeeping
#accounting
#financialaccounting
#financialaccounts
#ifrs
#ias
_______________________________________________________________________________
🔴Subscribe for more Accounting Tutorials → / @laimab_official
⏱️TIMESTAMPS
00:06 - Video Intro
00:19 - Introduction
01:10 - Objectives & Scope
01:41 - History
02:38 - What is Inventories?
07:07 - How to Measure Inventories
08:47 - Business Case Study
09:27 - Wrap up
Watch video IAS 2 : Inventories – summary (2024) online without registration, duration hours minute second in high quality. This video was added by user LAIMAB 27 July 2021, don't forget to share it with your friends and acquaintances, it has been viewed on our site 15,997 once and liked it 52 people.