PAS 2 Inventories

PAS 2 sets out guidelines for accounting of inventories. It prescribes the proper accounting for
the determination of cost of inventories, the proper selection of appropriate cost formulas,
their initial and subsequent measurements and when inventories are expensed.

DMCI Holdings, Inc. classifies its inventories into five categories: Real Estate Held for Sale and
Development, Coal Inventory, Nickel Ore Inventory, Materials in Transit and Equipment Parts
and Supplies. These form part of the consolidated amount of inventories in the current assets
section of the balance sheet.

A. Recognition

1. Real Estate Held for Sale and Development

These include condominium units and subdivision lands for sale and development.
These qualify to be recognized as inventories because these are held for sale in the ordinary
course of business.

2. Coal Inventory

These are inventories that resulted from mining. They qualify for recognition as
inventories because the entity (subsidiary) operates mainly for coal production which form part
of its ordinary business activities.

3. Nickel Ore Inventory

These are also inventories that resulted from mining. These qualify to be recognized as
inventories because they form part of the entity’s (subsidiary) normal course of business.

4. Materials in Transit

These are materials not yet received by the entity. These qualify for recognition as
inventories because these are necessary in the process of production.

5. Equipment Parts and Supplies

 These refer to the equipment parts and supplies used for repair and maintenance of the
equipment. These are recognized as inventories because they form part in the process of
production.

The inventories recognized in the consolidated financial statements of the parent company all
complied to the prescribed standard set by PFRS which define inventories as finished goods,
work in process and raw materials.

B. MEASUREMENT

The inventories aforementioned are valued at lower of cost which comprises of acquisition
cost, conversion cost and costs in bringing inventories into their saleable condition and net
realizable value which refers to the estimated selling price less the estimated cost to complete
and cost to sell as prescribed by the PFRS.

C. COST FORMULAS

1. Real Estate Held for Sale and Development

Cost of inventory is determined through specific identification cost formula since costs
are based relative to the size of the properties sold.

2. Coal Inventory

Cost of inventory is determined through the weighted average cost formula.

3. Nickel Ore Inventory

Cost of inventory is determined through moving average cost formula.

4. Materials in Transit

Cost of inventory is determined using specific identification cost formula.

5. Equipment Parts and Supplies

 Cost of inventory is determined using the average cost formula (either by moving
average or weighted average).

PAS 2 prescribes the use of specific identification, FIFO and Average cost formulas as methods
of determining the cost of inventories to be charged as expense when related revenues are
recognized, in which the entity has complied with.