DISCLOSURE NOTES
INVETORY
Inventory Disclosures in Financial Statements (IAS 2 – Inventories)
(Easy & Detailed Notes for ACCA FA)
Inventory disclosures are important to provide transparency on how a company
measures, values, and manages its stock. IAS 2 – Inventories outlines what must be
disclosed in the financial statements.
1. Key Inventory Disclosures (IAS 2)
✅ 1.1 Accounting Policies for Inventory Valuation
Cost formula used: FIFO (First-In, First-Out), Weighted Average Cost, or Specific
Identification.
Measurement basis: Inventories are valued at Cost or Net Realizable Value
(NRV), whichever is lower.
✅ 1.2 Breakdown of Inventory Categories
Raw materials
Work-in-progress (WIP)
Finished goods
Spare parts & supplies
✅ 1.3 Total Carrying Amount of Inventories
The total value of inventories held at year-end.
Should be classified as current assets in the Statement of Financial Position.
✅ 1.4 Inventory Recognized as an Expense (Cost of Sales - COGS)
The amount of inventory expensed in the Statement of Profit or Loss.
Often labeled as "Cost of Sales" or "Cost of Goods Sold (COGS)".
✅ 1.5 Write-downs & Reversals
Any reduction in inventory value to Net Realizable Value (NRV) must be
disclosed.
If a previous write-down is reversed, the amount should be stated separately.
✅ 1.6 Inventories Pledged as Collateral/Security
If inventory has been used as collateral for a loan, this must be disclosed.
✅ 1.7 Inventory Held at Fair Value Less Costs to Sell
If a company measures some inventory at fair value, the method and
reasoning must be disclosed.
Example: Agricultural products or commodities.
2. Example of Inventory Disclosure Note
Note 3: Inventories
Inventories are valued at the lower of cost or net realizable value (NRV) in
accordance with IAS 2 – Inventories. Cost is determined using the FIFO method.
Inventory Carrying Amount
Category ($)
Raw Materials 80,000
Work-in-Progress 45,000
Finished Goods 150,000
Spare Parts &
25,000
Others
Total Inventory 300,000
Additional Disclosures:
During the year, $15,000 of inventory was written down to NRV.
A previous inventory write-down of $5,000 was reversed.
Inventory worth $40,000 is pledged as collateral for a bank loan.
Inventory recognized as Cost of Sales (COGS): $500,000.
3. Summary (Easy Revision Guide)
🔹 State the cost formula (FIFO, Weighted Average, etc.).
🔹 Provide a breakdown of inventory types (Raw materials, WIP, Finished goods).
🔹 Disclose the total inventory value at year-end.
🔹 Mention any inventory write-downs or reversals.
🔹 State if any inventory is pledged as security.
🔹 Report inventory used in COGS (Cost of Goods Sold).
This ensures full compliance with IAS 2 – Inventories and provides transparency to
investors and stakeholders.
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INTANGIBLE ASSETS
Disclosure of Intangible Assets in Financial Statements (IAS 38 – Intangible
Assets)
1. What Are Intangible Assets?
Intangible assets are non-physical assets that provide future economic benefits, such as
patents, trademarks, copyrights, goodwill, and software.
Under IAS 38 – Intangible Assets, companies must disclose details about intangible
assets in their financial statements to ensure transparency.
2. Key Disclosure Requirements Under IAS 38
✅ Accounting Policies for Intangible Assets
Measurement model used: Cost Model or Revaluation Model.
Amortization method and useful life (finite or indefinite).
Impairment policy (how the company assesses for impairment).
✅ Carrying Amount of Each Class of Intangible Assets
Patents
Trademarks
Software
Goodwill
Other intangible assets
✅ Reconciliation of Movements in Intangible Assets
Companies must disclose a table showing:
1. Opening balance (beginning of the year)
2. Additions (new purchases or internally developed assets)
3. Disposals (assets written off or sold)
4. Amortization charge (for finite-life intangibles)
5. Impairment losses (if any)
6. Closing balance (end of the year)
✅ Useful Life and Amortization
If finite, disclose useful life and amortization rate.
If indefinite, explain why.
✅ Impairment Losses (IAS 36 – Impairment of Assets)
If an intangible asset has been impaired, disclose reason and amount.
✅ Goodwill (If Applicable – IFRS 3)
How goodwill was calculated in a business combination.
Impairment test results (Goodwill is never amortized, only tested for impairment).
3. Example of Intangible Asset Disclosure Note
Note 3: Intangible Assets
The company follows IAS 38 – Intangible Assets and uses the cost model for
intangible asset valuation. Software and patents are amortized on a straight-line basis
over their useful lives. Goodwill is tested for impairment annually.
Reconciliation of Intangible Assets (Example Table)
Categor Opening Additions Amortization Impairment Closing
y Balance ($) ($) ($) ($) Balance ($)
Software 50,000 10,000 (15,000) - 45,000
Patents 100,000 20,000 (10,000) (5,000) 105,000
Goodwill 200,000 - - (20,000) 180,000
Total 350,000 30,000 (25,000) (25,000) 330,000
The company amortizes software over 5 years and patents over 10 years.
A goodwill impairment loss of $20,000 was recorded due to a decline in expected
future earnings.
4. Summary
Companies must disclose information about intangible assets, including valuation
methods, amortization, impairment losses, and movement details. ACCA
students should focus on IAS 38 & IAS 36 rules to understand how to properly account
for and disclose intangible assets.
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