IAS 2 outlines the accounting requirements for inventories. This standard is applicable to all inventories with the exception of financial instruments (addressed by IAS 32 and IFRS 9) and biological assets covered by IAS 41.
Furthermore, exemptions apply to the measurement of inventories held by certain agricultural and forestry producers, agricultural produce after harvest, and minerals or mineral products, as well as certain commodity brokers-dealers. For detailed information, refer to paragraphs IAS 2.3-5.
Definition of inventories
Inventories, as defined in IAS 2.6, are assets:
- Held for sale in the ordinary course of business; or
- In the process of production for such sale; or
- In the form of materials or supplies set for consumption during the production process or in the provision of services.
To illustrate, inventories can be goods bought by a retailer for resale, finished goods, goods still in production, or materials set aside for the production process, as highlighted in IAS 2.8. If costs incurred to fulfil a contract with a customer don’t lead to an asset recognised under IAS 2 or other IFRS standards, they should be accounted for under IFRS 15.
Administrative supplies
Administrative or office supplies like printing paper aren’t covered by IAS 2, as they don’t fit the definition in IAS 2.6. Typically, they’re not of significant value and are therefore recognised as expenses upon receipt. However, they can be recognised as assets based on a company-specific accounting policy developed under IAS 8.10-12.
Work-in-progress of a service provider
With the introduction of IFRS 15, paragraph IAS 2.19, which related to the cost of inventories of service providers, was removed. Previously, this paragraph detailed that such costs mainly encompassed the expenses of personnel directly involved in service provision, inclusive of supervisory staff, and relevant overheads. The deletion by IFRS 15 suggests that service providers should consider their intangible work-in-progress under IFRS 15, treating them as costs incurred to fulfil a contract.
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Differentiating between intangible assets, PP&E, investment property, and inventory
You can delve deeper into:
- The distinction between certain assets under IAS 16 and those in the scope of IAS 2.
- Differentiating intangible assets covered by IAS 38 from those under IAS 2.
- Distinguishing between rental properties under IAS 40 and those under IAS 2.
Disclosure
The disclosure requirements can be found in IAS 2.36-39.
More about IAS 2
See other pages relating to IAS 2:
IAS 2: Scope, Definitions and Disclosure
IAS 2: Cost of Inventories
IAS 2: Cost Formulas (FIFO, LIFO and Weighted Average Cost)
IAS 2: Net Realisable Value (NRV)