IAS 2 Inventory

Question 1

What are inventories

Answer 1

Inventories are assets that are:

• Held for sale
• In the process of production
• Materials that will be used in the production process

Question 2

What costs are not included in inventory

Answer 2

Examples of costs that should not be included in inventory are:

• Abnormal amounts of waste materials, labour, or other production costs
• Storage costs
• Administration costs that do not contribute to bringing the inventories to their present location and condition
• Selling and distribution costs

Question 3

How should inventory be valued

Answer 3

The lower of

Cost

Cost of purchase, costs of conversion and costs to bring inventory to the present location and condition.

Costs of conversion may include production overheads. These should be allocated based on normal production levels.

Net realisable value

Estimated selling prices less costs to completion less costs to sell.