Choose a Current International Accounting Standard (Ias) or International Financial Reporting Standard (Ifrs). Briefly Summarise Its Provisions and Assess Whether the Standard Can Be Considered to Be ‘Principles-Based’ or ‘Rules-Based’, E...

Topics: Inventory, FIFO and LIFO accounting, Asset Pages: 4 (1172 words) Published: May 4, 2008
Introduction
There are mainly two accounting standards: principle-based and rule-based in the accounting system. This paperwork will chose one regulation in International Accounting Standard, which is covered the regulations on inventory. After the brief summary of IAS 2, there will be a discuss about the IAS 2’s characteristics. Summary of IAS 2

In summary, the objective of IAS 2 is to prescribe the accounting treatment for inventories. It provides guidance not only for determining the cost of inventories and for subsequently recognising an expense, involving any write-down to net realisable value, but also on the cost formulas that are used to assign costs to inventories. The definition of Inventories in IAS 2 includes work in process (assets in the production process for sale in the ordinary course of business), finished goods (assets held for sale in the ordinary course of business) and raw materials (materials and supplies that are consumed in production). [IAS 2.6] As the fundamental Principle of IAS 2, Inventories should be measured at the lower of cost and net realisable value (which 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). [IAS 2.9] The measurement of cost of inventories shall comprise all costs of purchase (including taxes, transport, and handling), costs of conversion (including fixed and variable manufacturing overheads) and other costs incurred in bringing the inventories to their present location and condition. [IAS2.10] The cost of inventories shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula for items that are interchangeable. The LIFO formula, which had been allowed prior to the 2003 revision of IAS 2, is no longer allowed. However, for inventory items that are not interchangeable and goods or services produced and segregated for specific projects, specific costs are attributed to the...
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