IAS 2 Inventories

IAS 2 Inventories

The objective of this Standard is to prescribe the accounting treatment for inventories.
A primary issue in accounting for inventories is the amount of cost to be recognised as
an asset and carried forward until the related revenues are recognised.  This Standard
provides guidance on the determination of cost and its subsequent recognition as an
expense, including any write-down to net realisable value.  It also provides guidance
on the cost formulas that are used to assign costs to inventories.
Inventories shall be measured at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business
less the estimated costs of completion and the estimated costs necessary to make the
sale.
The cost of inventories shall comprise all costs of purchase, costs of conversion and
other costs incurred in bringing the inventories to their present location and condition.
The cost of inventories shall be assigned  by using the first-in, first-out (FIFO) or
weighted average cost formula.    An entity shall use the same cost formula for all
inventories having a similar nature and use  to the entity.  For inventories with a
different nature or use, different cost formulas may be justified.  However, the cost of
inventories of items that are not ordinarily interchangeable and goods or services
produced and segregated for specific projects shall be assigned by using specific
identification of their individual costs.
When inventories are sold, the carrying  amount of those inventories shall be
recognised as an expense in  the period in which the related revenue is recognised.
The amount of any write-down of inventories to net realisable value and all losses of
inventories shall be recognised as an expense in the period the write-down or loss
occurs.  The amount of any reversal of any write-down of inventories, arising from an
increase in net realisable value, shall be recognised as a reduction in the amount of
inventories recognised as an expense in the period in which the reversal occurs