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OBJECTIVE
SCOPE
DEFINITIONS
MEASUREMENT OF INVENTORIES
Cost of inventories
Cost formulas
Net realizable value
RECOGNITION AS AN EXPENSE
DISCLOSURE
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To prescribe the accounting treatment for

inventories.
 To determine the amount of cost to be
recognized as an asset.
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• The Standard applies to all inventories, except:

• - work in progress on construction and service
contracts (IAS 11);
• - financial instruments (IAS 32 and IFRS 9); and

• - biological assets arising from agricultural

activity (IAS 41).
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• Inventories are assets:

• (a) held for sale in the ordinary course of business;
• (b) in the process of production for such sale; or
• (c) in the form of materials or supplies to be
consumed in the production process or in the
rendering of services.
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• Inventories shall be measured at the lower of cost

and net realizable value.
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• The cost of inventories shall comprise all

– costs of purchase,
– costs of conversion and
– other costs incurred in bringing the inventories to their
present location and condition.
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Costs of purchase includes:-

• purchase price
• Import duties and other taxes
• Transport, handling
• Other costs less:- Trade discounts & rebates
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Costs of conversion includes:-

• Direct labor
• Production overheads
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• Examples of costs excluded from the cost of

inventories and recognized as expenses in the
period in which they are incurred are:
– abnormal amounts of wasted materials, labor or
– other production costs;
• (b) storage costs, unless those costs are necessary in
the production process before a further production
stage;
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• (c) administrative overheads that do not contribute

to bringing inventories to their present location and
condition; and
• (d) selling costs.
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 Specific Identification
 FIFO
 Weighted Average

• N.B:- Use the same cost formula for all inventories

having a similar nature and use to the entity.
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NRV = Estimated S.P less costs to sell

General Rule:- assets should not be carried in excess
its recoverable amount.
Reasons for NRV becomes lower than the cost:-
1. Damage/ obsolescence
2. Falling in selling price
3. Increase in cost of completion
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 When inventories are sold, the carrying

amount of those inventories shall be
recognized as an expense in the period in
which the related revenue is recognized.
 The amount of any write-down of inventories
to net realizable value and all losses of
inventories shall be recognized as an expense
in the period the write down or loss occurs.
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The financial statements shall disclose:-

(a) the accounting policies adopted in measuring
inventories, including the cost formula used;
(b) the total carrying amount of inventories
(c) the carrying amount of inventories carried at fair
value less costs to sell;
(d) the amount of inventories recognized as an
expense during the period;
(e) the amount of any write-down of inventories
recognized as an expense in the period
Thank You