IAS2 Inventories are assets:

 Held for sale in ordinary course of business

 In the process of production for such sale

 In the form of materials or supplies to be consumed in the production

process or in the rendering of services.

All inventories except:

 Financial instruments (IAS 32 Financial Instruments: Presentation & 39 Financial Instruments: Recognition and measurement & IFRS 9 Financial Instruments)

 Biological assets (IAS 41 Agriculture).

Does not apply to measurement of inventories held by:

 Producers of agricultural and forest products measured at NRV

 Minerals and mineral products measured at NRV

 Commodity brokers who measure inventory at fair value less costs to sell.

INVENTORIES ARE MEASURED AT THE LOWER OF COST AND NET REALISABLE VALUE (NRV)

(This is an implicit impairment test, thus inventories are excluded from the scope of IAS 36 Impairment of Assets)

COST:

Includes:

 Costs of purchase, including non-recoverable taxes, transport and handling

 Net of trade volume rebates

 Costs of conversion

 Other costs to bring inventory into its present condition and location.

Excludes:

 Abnormal waste

 Storage costs (unless necessary for the production process)

 Admin overheads not related to production

 Selling costs

 Interest cost (where settlement is deferred) − IAS 23 Borrowing Costs identifies limited circumstances where borrowing costs can be included.

Cost Formulas:

 For non-interchangeable items:

− Specific identification.

 For interchangeable items, either:

− FIFO

− Weighted average cost.

 Use of LIFO is prohibited.

NET REALISABLE VALUE

NRV is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs to make the sale.

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