KLiPs - IFRS 2 (IAS 2): Inventories

KLiPs is a short summary of the topic in question in text and audio form, for your convinience. 


There are three segments in this KLiPs:
1) Measurement of Inventories
2) Recognition as an expense
3) Disclosure


There are 7 points to take note of in Measurement of Inventories

  1. Cost of Inventories

Inventories shall be measured at the lower of cost and net realizable value.

The cost of inventories shall comprise all cost of purchase, cost of conversion, and other costs incurred in bringing the inventories to their present location and condition.

  1. Cost of Purchase

The cost of purchase of inventories comprise the purchase price, import duties and other taxes, transport, handling, and other costs directly attributable to the acquisition of finished goods, materials, and services. Trade discounts, rebates, and other similar items are deducted in determining the cost of purchase.

  1. Cost of Conversion

The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods.

  1. Other Costs

Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition.

  1. Cost of Agricultural Produce Harvested from Biological Assets

In accordance with IAS 41 Agriculture, inventories comprising agricultural produce that an entity has harvested from its biological assets are measured on initial recognition at their fair value less costs to sell at the point of harvest.

  1. Cost Formulas

The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs.

The cost of inventories other than those dealt with above shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula.

  1. Net Realisable Value

The cost of inventories may not be recoverable if those inventories are damaged, become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion of the estimated cost to be incurred to make the sale have increased.



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 financial statements shall disclose:

  1. The accounting policies for inventories
  2. The total carrying amount of inventories and the carrying amount in classifications
  3. The carrying amount of inventories carried at fair value less costs to sell
  4. The amount of inventories recognized as an expense during the period
  5. The amount of any write-down of inventories recognized as an expense in the period
  6. The amount of any reversal of any write-down that is recognized as a reduction
  7. The circumstances or events that led to the reversal of a write-down
  8. The carrying amount of inventories pledged as security for liabilities














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