Inventory in IFRS 3 Business Combinations

[IFRSBeginner]

Hi all,

I am currently working on a PPA for an entity we recently acquired. Apparently, according to our audit partner, there is a provision within the standards that allows raw material inventory to not be adjusted up to FV due to the fact that it would skew margins for profit and loss reporting. I didn't get much more detail than what I described above. Is anyone familiar with this exception and could you please point me in the right direction?

Thanks,

[Marek Muc]

Hi,
I'm 99.9% sure there is no such exception in IFRS. All inventories should be measured at fair value at business combination date

[IFRSBeginner]

Thanks Marek. After looking through the standards, I don't see any exception to this rule either. Not sure where the miscommunication happened between my boss and the partner.

[Marek Muc]

Well, many audit partners are, so to say, not IFRS experts

But I'm surprised that this is even an issue. What are these raw materials? It's unusual that the difference between historical cost (adjusted for NRV) and fair value is material.

[IFRSBeginner]

I guess you're right, I've worked with some audit partners who weren't the best out there.

Also yes, the difference between the cost of raw materials and the FMV of the same raw materials as there has been no value add to the materials so it should be fairly close.

The raw materials would be metals such as steel.

[Marek Muc]

If the difference is immaterial you can carry on with the historical cost and treat it as a sufficient approximation of fair value