- IAS 2: Inventories
Types of Inventories
- Finished goods
- Raw materials
Valuation of Inventories
Inventories are valued at lower of
- Cost; and
- Cost = Cost of purchase + cost of conversion + other costs to bring the inventories to their present location and condition
- Cost of purchase = Cost of purchase – trade discounts
- Cost of conversion = Direct costs (labour and expenses) + Indirect costs (share of production overheads)
- Other costs = Import duties + transport costs + other handling costs
- Net realisable value (NRV)
- NRV = Estimated selling price – estimated cost to complete the item for sale – estimated cost to make the sale
Measuring the Cost of Goods Sold (from Inventories)
- Actual cost is used if items sold can be individually identified, else either FIFO (First-In-First-Out) or AVCO (Weighted Average Cost) is used.
- LIFO (Last-In-First-Out) is no longer allowed.
Accounting for Write-downs
- Expense recognised in P&L.
- Cr Inventory, Dr Inventory Write-down Expense