Section 3140: Inventory
International Accounting Standard 2
Inventories
1. First version of IAS 2
"Valuation and presentation of inventories in the context of the historical cost system"
Issued in October 1975
2. Revisions
December 1993, Inventories
December 2003, Inventories
[U.S. GAAP Codification Topic]
330 Inventory
3. Measurement of inventories, IAS 2.9
Inventories are measured at the lower of the following:
(1) cost
(2) net realisable value
net realisable value, NRV
NRV = (1) - (2)
(1) estimated selling price
(2) estimated costs of completion and sale
4. U.S. GAAP, ASC 330-10-35-1, ARB 43, ch 4, pr 8,
Inventories are valued at the lower of
(1) cost or
(2) market
market = current replacement cost,
if current replacement cost is below upper limit and above lower limit
upper limit of market = NRV
lower limit of market = NRV - normal profit margin
Lower of cost and NRV
[IAS 2.9] Lower of cost and NRV
[ASC 330-10-35-1] Lower of cost or market
5. Cost includes all costs incurred to bring inventories to current location and condition
6. Measurement of cost
(1) standard cost method is allowed
(2) retail method is allowed
7. Cost Formulas, IAS 2.25
(1) First-in, first-out (FIFO) method is allowed
(2) Weighted average method is allowed
(3) Last-in, first-out (LIFO) method is not allowed
8. U.S. GAAP, ASC 330-10-30-9, ARB No. 43, Ch. 4, Pr. 6
(1) First-in, first-out (FIFO) method is allowed
(2) Average method is allowed
(3) Last-in, first-out (LIFO) method is allowed
LIFO method
[IAS 2.25] LIFO is not allowed.
[ASC 330-10-30-9] LIFO is allowed.
9. Inventory write down, IAS 2.33
If NRV recovers in the later period
--> reversal of write down is allowed, up to the original write down
10. U.S. GAAP, ASC 330-10-35-14
--> reversal is not allowed
--> reduced amount becomes new cost
Reversal of write down
[IAS 2.33] Reversal is allowed upto original write down.
[ASC 330-10-30-14] Reversal is not allowed.
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