Inventories Ias 2
In the United States, the Financial Accounting Standards Board (FASB) has been the organization that establishes standards that govern the preparation of financial statements, known as the United States Generally Accepted Accounting Principals (US GAAP). Many countries have established their own national accounting standards as well; however, as international business and trade increases, so does the need for a common set of accounting standards. In response to this need, the International Accounting Standards Board (IASB) was established with the purpose of developing a set of international accounting standards to increase the comparability of financial reporting globally. These standards are known as the International Financial Reporting Standards (IFRS). Although US GAAP and IFRS are comparable in some aspects, there are also some contrasting aspects.
Under IFRS, the International Accounting Standard 2 (IAS 2) governs the accounting treatment for inventories. IAS 2 “provides guidance on the determination of the cost and subsequent recognition of expense (including write-down of inventory to its net realizable value). The Standard also provides guidance on the cost flow assumptions (“cost formulas”) that are to be used in assigning costs to inventories” (Mirza, Orrell and Holt). In addition, IAS 2 provides guidance on write-down reversals.
IAS 2 applies to all inventories except work in process under construction contracts and work in process directly related to service contracts, which are governed by IAS 11, Construction Contracts; financial instruments, which are covered by IAS 32, Financial Instruments: Presentation; and biological assets related to agricultural activity and agricultural produce at the point of harvest, which are covered by IAS 41, Agriculture. According to IAS 2, the measure of the value of inventories is the lower of cost or net realizable value. Net realizable value “is the estimated selling price in the ordinary course of business less
Under IFRS, the International Accounting Standard 2 (IAS 2) governs the accounting treatment for inventories. IAS 2 “provides guidance on the determination of the cost and subsequent recognition of expense (including write-down of inventory to its net realizable value). The Standard also provides guidance on the cost flow assumptions (“cost formulas”) that are to be used in assigning costs to inventories” (Mirza, Orrell and Holt). In addition, IAS 2 provides guidance on write-down reversals.
IAS 2 applies to all inventories except work in process under construction contracts and work in process directly related to service contracts, which are governed by IAS 11, Construction Contracts; financial instruments, which are covered by IAS 32, Financial Instruments: Presentation; and biological assets related to agricultural activity and agricultural produce at the point of harvest, which are covered by IAS 41, Agriculture. According to IAS 2, the measure of the value of inventories is the lower of cost or net realizable value. Net realizable value “is the estimated selling price in the ordinary course of business less
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