IAS 2

INVENTORY CHAP 13
Learning Outcomes

•When to recognise inventory

•How to measure inventory initially
•Subsequent measurement of inventory
•Derecognition during sale
•Disclosure in the F/S in terms of IAS 2
Definitions
NRV

Selling price less costs necessary to make

sale (and less cost to complete in the case
of WIP)

Entity specific
Measurement: end of year
• Lowest of:
• Cost
• NRV
NRV
• Events after balance sheet date should be
considered.
• Item for item basis not per class
• Included in COS or other expenses
• Test every year
• Reversal limited to CP
NRV
• EX 28 to 32
NRV - manufacturing

•If the finished product’s NRV > cost, then

no write-down of the material that
makes up the finished product is
necessary. Unless?
•If the finished product’s NRV < cost, then
every material must be tested for
impairment.
Measurement:NRV of material

Establish purpose of material

•Production
•Sale
•Replacement value
•Vs NRV of final product
 Measurement:NRV of material
NRV finished goods = R96 000 (R0.80 per unit)
Cost of FG = R120 000
(120 000 units)
Cost price of material = R45 000 (95 000 units)
Conversion cost = R50 000
Replacement cost of material = R47 000
Measurement:NRV of material

Pupose to sell material as is:

NRV = Net replacement cost

R47 000
Therefore no write down
Measurement:NRV of material
Purpose to use material in production:

NRV as finished product = (95 000 *0.8) = R76 000

To convert = R50 000
Therefore NRV is:
R76 000 – 50 000 =
R26 000 NRV
Write down is R45 000 –R26 000 = R19 000
Measurement:NRV of material
Purpose: can choose if want to sell of produce:

Use bigger of R47 000 or R26 000

(Business sense)

If nothing is mentioned, assume production