Measurement
Inventories are to be measured at the lower of cost and net
MFRS 102 Inventories
Inventories comprise those:
– 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.
Cost of Conversion
• Conversion costs are production costs, such as labour
and overhead, that are directly related to the production of
the output. Absorption costing is used in determining cost
of production for reporting purpose. The cost of the
inventories includes direct and indirect cost (overhead).
• Some of the overhead will be variable and others fixed.
• Fixed overhead is to be allocated to the units of
production based on a pre-determined basis based on
normal capacity.
realisable value.
Cost of the inventory includes all costs incurred to bring the
inventory to its present location and condition. It will include
all costs of purchase, conversion costs and all other costs.
Net Realisable Value
MFRS 102 defines net realisable value as ‘the estimated
selling price in the ordinary course of business less
estimated costs of completion and the estimated costs
necessary to make the sale’.
Cost Formulas
• Specific Identification Method
• First In First Out (FIFO) and
• Weighted Average Methods
• Other Methods
– Techniques such as standard cost and retail price may be used
for convenience if the results approximate cost
Last In First Out (LIFO) is prohibited
 Writing Down to Net Realisable Value

• Generally, inventories are written down to net

realisable value item by item. Other basis is to
group similar or related items.

• Raw materials and supplies held in the

manufacture or production of finished goods are
not generally written down below costs if the
finished goods in which they are incorporated are
expected to be sold above costs.