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Inventories (IAS 2)
1 PROBLEMS ADDRESSED
The objective of IAS 2 is to prescribe the accounting treatment of inventories. This
Standard deals with calculation of the cost of inventory recognized as an asset, the
determination of cost, the recognition of inventories as an expense, and any write-downs to
net realizable value.
September 1974 Exposure Draft E2 Valuation and Presentation of Inventories in the
Context of the Historical Cost System
October 1975 IAS 2, Valuation and Presentation of Inventories in the Context of the
Historical Cost System
August 1991 Exposure Draft E38 Inventories
December 1993 IAS 2 (1993) Inventories (revised as part of the Comparability of
Financial Statements project based on E32)
1 January 1995 Effective Date of IAS 2 (1993)
18 December 2003 Revised version of IAS 2 issued by the IASB
1 January 2005 Effective date of IAS 2 (Revised 2003)
2 SCOPE OF THE STANDARD
This Standard deals with all inventories of assets that are:
" Held for sale in the ordinary course of business
" In the process of production for sale
" In the form of materials or supplies to be consumed in the production process
" In the rendering of services
In the case of a service provider, inventories include the costs of the service for which the
related revenue has not yet been recognized (for example, the work in progress of auditors,
architects, and lawyers).
IAS 2 does not apply to the measurement of inventories held by producers of agricultural
and forest products, agricultural produce after harvest, and minerals and mineral products
to the extent that they are measured at net realizable value in accordance with
well-established practices in those industries.
IAS 2 also does not apply to living plants and animals and harvested agricultural produce
derived from those plants and animals (see IAS 41, chapter 27).
3 KEY CONCEPTS
3.1 Inventories should be measured at the lower of cost and net realizable value.
3.2 Cost of inventories comprises all costs of purchase, costs of conversion, and other costs
incurred in bringing the inventories to their present location and condition.
3.3 The net realizable value (NRV) is the estimated selling price less the estimated costs of
completion and costs necessary to make the sale.
3.4 When inventories are sold, the carrying amount of the expenses should be recognized
as an expense in the period in which the related revenue is recognized (see Chapter 17).
3.5 The amount of any write-down of inventories to net realizable value and all losses of
inventories should be recognized as an expense in the period of the write-down or loss.
