IAS2 Inventories Essay Example | Topics and Well Written Essays - 1250 words

IAS2 Inventories - Essay Example The main objective of IASB for IAS2 was to reduce the alternatives in the measurement of inventories. The revised IAS2 does not allow the consideration of the exchange differences, arising from the purchase of inventories that are invoiced in the overseas currency, to be treated as a part of inventories purchase cost (Malaysian Accounting Standards Board, n.d.). As per IAS2 the inventories are measured at cost or realizable value whichever is lower, based on every item. The inventory costs is the sum total of the purchase cost like cost price, import duties, handling as well as transportation costs; after the adjustments of rebates and trade discounts, conversion costs and other costs that are incurred for transporting the inventories to the current location and form. But this excludes the storage costs, costs relating to abnormal wastage; and selling and administration. Inventories costs can be approximated using the standard cost method or retail inventory method. The cost of inventories relating to items that are usually interchangeable and also goods or services that are produced and set aside for other projects can be assigned costs on the basis of specific identification. The inventories are valued using the first-in-first-out (FIFO) method or the weighted average method. In FIFO the items in the inventory are measured on the basis of recent purchase. Net realizable value is the amount that the business expects to receive from the inventory sale in the due course of the business. In the Balance Sheet an entity reports the lower of the net realizable value and cost as an asset. This is shown below- After the sale of inventories, the carrying amount of the related inventories is recognized as expenditure in the statement of income in the time period when the revenue from it is recognized. In the event of a fall in the net realizable