The objective of IAS 2 is to prescribe the accounting treatment for inventories. It provides guidance for determining the cost of inventories and for subsequently recognising an expense, including any write-down to net realisable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.
Inventories are assets:
(a) held for sale in the ordinary course of business (example………;
(b) in the process of production for such sale (example………; or
(c) in the form of materials or supplies to be consumed in the production process or in the rendering of services (example………).
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Inventories are required to be stated at the lower of cost and net realisable value (NRV).
Cost should include all:
costs of purchase (including taxes, transport, and handling) net of trade discounts received
costs of conversion (including fixed and variable manufacturing overheads) and
other costs incurred in bringing the inventories to their present location and condition
