ias 2


  • The standard technique requires that inventory be valued at the standard cost of each unit; that is, the usual cost per unit at the normal level of output and efficiency.

  • IAS 2 requires that those assets that are considered inventory should be recorded at the lower of cost or net realisable value.

  • IAS 2 does not allow for the capitalisation of: • (a) the cost of abnormal levels of waste, • (b) storage costs where the storage is not part of the production process, •
    (c) administrative costs, • (d) selling costs.

  • [citation needed] In the event of there being multiple products produced from one process, such as a main product and a by-product, where the costs are not clearly separated,
    the costs should be allocated “on a rational and consistent basis”,[1] such as based on the market value of each unit once the two products become separate.

  • As an alternative, costs of inventories may be assigned by using the weighted average cost formula.

  • The retail technique values the inventory by taking its sales value and then reducing it by the relevant gross profit margin.

  • Cost not only includes the purchase cost but also the conversion costs, which are the costs involved in bringing inventory to its present condition and location, such as direct


Works Cited

[‘1. IFRS Foundation. “International Accounting Standard 2 Inventories” (PDF). IFRS Foundation. Retrieved 2013-03-01.
2. ^ PKF, IAS 2 Inventories Summary, accessed 17 December 2016 Photo credit: https://www.flickr.com/photos/ellesmerefnc/3734999477/’]