FinanceFinancial AccountingIASIFRS

IAS – 02 Inventories

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Inventories are assets that are: –

  • held for sale in the ordinary course of business
  • in the process of production for such sale; or
  • in the form of materials or supplies to be consumed in the production process or in the rendering of services

Measurement of Inventory:

Inventory should be measured at lower of cost or net realizable value.


Cost of inventories includes;

  • Cost of purchases net of trade discount received including taxes, transport and handling
  • Cost of conversion
  • Other cost to bring the assets to present location and condition

Cost Formulas: Cost of inventories should be measured either the;

  • First-in-first-out (FIFO) method
  • Weighted average (WAC) method

Net Realizable Value (NRV):

NRV is the estimated selling price less;

  • the estimated costs of completion and
  • the estimated costs necessary to make the sale

Expense Recognition:

  • Any write down to inventory or loss of inventory should be recognized as expense in the period in which the write down or loss occurs.
  • When inventory are sold and revenue is recognized the carrying amount of those inventories should be recognized as expense.


The following shall be disclosed in the financial statements;

  • the accounting policies for inventories
  • the total carrying amount of inventories
  • the carrying amount of inventories carried at fair value less costs to sell
  • the amount of inventories recognized as an expense during the period
  • the amount of any write-down of inventories recognized as an expense

the carrying amount of inventories pledged as security for liabilities

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