IAS 2 – Inventories


International Accounting Standard 2: Inventories deals with the requirements of one of the most important assets of the entity. From defining what inventory is, recognition, measurement and how to account for this crucial asset in the financial statements.

Executive Summary

As per the requirements of IAS 2 inventory is to measured at lower of cost and net realizable value (NRV). To measure cost of inventory entity can go for usual or alternative techniques. As inventories keep on rolling during the year therefore to measure the cost with precision entities are allowed to use different cost formula like FIFO, AVCO or Specific cost to value inventories especially the inventory at the period end. In case if cost is higher than NRV than inventory is written down to net realizable value and IAS 2 provides how to incorporate the adjustment in the value of inventory. And lastly it also includes instructions on how to report figures inventory in the financial statements and what other information is required to be specifically disclosed in the financial statements.