FAR.

02 Inventories

NATURE
Inventories are assets:
I. Held for sale in the ordinary course of business.
II. In the process of production for sale in the ordinary course of business.
III. In the form of materials or supplies to be consumed in the production process or in the
rendering of services.

FOB Shipping Point, FOB Seller, FOB Origin – The buyer is the one to pay for the shipping costs. The
owner of the goods is the buyer.

FOB Destination, FOB Buyer – The seller is the one to pay for the shipping costs. The owner of the goods
is the seller.

RECOGNITION
Recognition of Inventories is not specified in PAS 2.

MEASUREMENT
Inventories are measured at lower of cost and net realizable value. LCNRV

Activities Accounting for Expenditures

Purchasing Costs of purchase
Production Costs of conversion
Administrative Generally expense
Selling Always expense

Cost of Sales Formula:

Inventory, Beg. XX
Purchases, net XX
TGAS XX
Inventory, End. XX
Cost of Sales XX

Trade or Cash Discount

Trade Cash
Objective Generate sales Encourage prompt
payment
Accounting Not recorded Recorded using
separately either Gross or Net
(Purchases/Sales method
net of trade
discount)
 DISCLOSURE
1. accounting policy for inventories
2. carrying amount, generally classified as merchandise, supplies, materials, work in progress,
and finished goods. The classifications depend on what is appropriate for the entity
3. carrying amount of any inventories carried at fair value less costs to sell
4. amount of any write-down of inventories recognised as an expense in the period
5. amount of any reversal of a write-down to NRV and the circumstances that led to such
reversal
6. carrying amount of inventories pledged as security for liabilities
7. cost of inventories recognised as expense (cost of goods sold).