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Exception to the lower of cost and net realizable value rule in IAS 2-Inventories 14/09/13 23:06

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Exception to the lower of cost and net
realizable value rule in IAS 2-Inventories Follow 516,486

Three techtips on IAS 2-Inventories:- (a) Exception to the
lower of cost and net realizable value rule in IAS 2; (b)
Inventory cost formula consistency requirement; and (c). Can
exchange differences on acquisition of inventories be
capitalized?

Exception to the lower of cost and net realizable value rule

IAS 2 states that inventories shall be measured at the lower of cost and net realizable value.
The standard further states that this practice of writing inventories down below cost to their net
realizable values is in line and consistent with the principle that assets should not be carried in
excess of amounts expected to be realized from their sale or use. The same principle applies
to non-current assets that are reviewed and tested for impairment in order to ensure they are
not carried above their recoverable amounts.

However, without prejudice to the above rule, IAS 2 states that materials (raw materials for
instance) and other supplies held for use in the production of inventories (e.g. finished goods or
other forms of materials) are not written down below cost if the finished products in which they
will be incorporated are expected to be sold at or above cost.

This is a check that must be carried out by entities before writing down materials and supplies
that form input into other production stages in order to comply with the requirements of IAS 2.

Inventory cost formula consistency

http://ifrscasebook.com/the-hub/ifrs-techtip-a-quiz/104-exception-to-…wer-of-cost-and-net-realizable-value-rule-in-ias-2.html#.UjUrLxbfj04 Página 1 de 3

new measurement category added Tweet 0 Difference between financial and performance guarantees Depreciation policy in the aircraft leasing industry Difference between Net Realizable Value and Fair Value less cost to sell Fair Value Definition .com/the-hub/ifrs-techtip-a-quiz/104-exception-to-…wer-of-cost-and-net-realizable-value-rule-in-ias-2.g.NEW vs. This is a new incorporation into the standard. The requirement was hitherto contained in SIC-1. Plant and Equipment (IAS 16)? Did you know?. SIC 1 is now superseded. FIFO or weighted average. but will not display) 1000 symbols left Notify me of follow-up comments Other helpful resources Send Are hotel properties Investment Properties (IAS 40) or Property. With the incorporation of this requirement into IAS 2.Exception to the lower of cost and net realizable value rule in IAS 2-Inventories 14/09/13 23:06 IAS 2 requires that an entity uses the same cost formula.Consistency –Different Cost formulas for Inventories..Big4 fact JComments IFRS 9 . This is a change from the previous version of IAS 2 to enable consistency with the new requirement of IAS 21 (The Effects of Changes in Foreign Exchange Rates) that has eliminated the alternative treatment of capitalizing certain exchange differences. OLD Difference between Economic Life and Useful Life of an Asset Depreciation charge is not always recognized in the profit & loss account. Can exchange differences on acquisition of inventory be capitalized as part of the cost of purchase of the inventory? IAS 2 does not permit exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency to be included in the costs of purchase of inventories. 0 ADD COMMENT Name (required) E-mail (required.html#. Why and How? CASE STUDY: Should stand-by equipment be depreciated? http://ifrscasebook. e.UjUrLxbfj04 Página 2 de 3 .. for all inventories that have a similar nature and use to the entity.

com/the-hub/ifrs-techtip-a-quiz/104-exception-to-…wer-of-cost-and-net-realizable-value-rule-in-ias-2.com http://ifrscasebook.Exception to the lower of cost and net realizable value rule in IAS 2-Inventories 14/09/13 23:06 Main Menu IFRS TechTips & Quiz IFRS News IFRS Case Studies IFRS Articles The HUB IFRS TechTip & Quiz IFRS News IFRS Case Studies IFRS Articles Advertise Share About us Forum Connect with us email: ifrs@ifrscasebook.html#.UjUrLxbfj04 Página 3 de 3 .