INVENTORIES

PAS 2 defines INVENTORIES as assets:

• held for sale at the ordinary course of business

• in the process of production for such sale

• in the form of materials or supplies to be consumed

in the production process or in the rendering of
services
 Trading Concern

Classes of Inventories

Manufacturing Concern
 one that buys and sells goods in the same form
purchased
ern
Co nc
ing “Merchandise Inventory”
Trad
 r ing
fac tu one that buys goods which are altered or converted into another form
a nu n before they are made available for sale
M c e r
Con

Raw materials

Factory or manufacturing supplies Goods in process Finished goods

 Key Comparisons
between Full PFRS,
PFRS for SMEs and
PFRS for Small
Entities
 SCOPE AND STANDARDS

PFRS for SMEs PFRS for SE Full PFRS

Out of scope are work in progress under

construction contracts, financial instruments,
biological assets and agricultural produce, as
well as inventories held by:
a) Producers of agricultural, forest and mineral
Same as PFRS for Same as PFRS for
products, to the extent that they are
SMEs. SMEs.
measured at fair value less costs to sell
through profit or loss.
b) Commodity brokers and dealers who
measure their inventories at fair value less
costs to sell through profit or loss.
 MEASUREMENT

PFRS for SMEs PFRS for SE Full PFRS

An entity shall
An entity shall
An entity shall measure inventories at the measure inventories
measure inventories
lower of cost or estimated selling price less at the lower of cost
at the lower of cost
cost to complete and sell. or net realizable
or market.
value.
 COST OF PURCHASE

PFRS for SMEs PFRS for SE Full PFRS

Cost of purchase of inventories includes

the purchase price, import duties, non-
refundable taxes, transport and handling Same as PFRS for Same as PFRS for
costs and any other directly attributable SMEs. SMEs.
costs less trade discounts, rebates and
similar items.
 COST OF CONVERSION

PFRS for SMEs PFRS for SE Full PFRS

Costs of conversion of inventories

include costs directly related to the units
of production, such as direct labor. They
Same as PFRS for Same as PFRS for
also include a systematic allocation of SMEs. SMEs.
fixed and variable production overheads
that are incurred in converting materials
into finished goods.
 COST FORMULAS

PFRS for SMEs PFRS for SE Full PFRS

The same cost formula is used for all

inventories that have a similar nature
Same as PFRS for Same as PFRS for
and use to the entity. Where inventories SMEs. SMEs.
have a different nature or use, a
different cost formula may be justified.
 TECHNIQUES FOR MEASURING COST

PFRS for SMEs PFRS for SE Full PFRS

The most
Techniques for measuring cost include:
recent purchase
• Standard cost method. Same as PFRS for
price is not
• Retail method. SMEs.
mentioned
• Most recent purchase price.
as an example.