This version includes amendments resulting from new and amended IFRSs issued up to 31 March 2004. The section “Changes in this Edition” at the front of this volume provides the application dates of these new and amended IFRSs and also identifies those current IFRSs that are not included in this volume. International Accounting Standard 2 Inventories (IAS 2) is set out in paragraphs 1-42 and the Appendix. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 2 should be read in the context of its objective and the Basis for Conclusions, the Preface to International Financial Reporting Standards and the Framework for the Preparation and Presentation of Financial Statements. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.
IN1. International Accounting Standard 2 Inventories (IAS 2) replaces IAS 2 Inventories (revised in 1993) and should be applied for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. The Standard also supersedes SIC-1 Consistency—Different Cost Formulas for Inventories.
Reasons for Revising IAS 2
IN2. The International Accounting Standards Board developed this revised IAS 2 as part of its project on Improvements to International Accounting Standards. The project was undertaken in the light of queries and criticisms raised in relation to the Standards by securities regulators, professional accountants and other interested parties. The objectives of the project were to reduce or eliminate alternatives, redundancies and conflicts within the Standards, to deal with some convergence issues and to make other improvements. For IAS 2 the Board’s main objective was a limited revision to reduce alternatives for the measurement of inventories. The Board did not reconsider the fundamental approach to accounting for inventories contained in IAS 2.
The Main Changes
IN4. The main changes from the previous version of IAS 2 are described below. Objective and Scope IN5. The objective and scope paragraphs of IAS 2 were amended by removing the words ‘held under the historical cost system’, to clarify that the Standard applies to all inventories that are not specifically excluded from its scope.
Scope Clarification IN6. The Standard clarifies that some types of inventories are outside its scope while certain other types of inventories are exempted only from the measurement requirements in the Standard. Paragraph 3 establishes a clear distinction between those inventories that are entirely outside the scope of the Standard (described in paragraph 2) and those inventories that
are outside the scope of the measurement requirements but within the scope of theother requirements in the Standard. Scope Exemptions
Producers of agricultural and forest products, agricultural produce after harvest and minerals and mineral products IN8. The Standard does not apply to the measurement of inventories of producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realisable value in accordance with well-established industry practices. The previous version of IAS 2 was amended to replace the words ‘mineral ores’ with ‘minerals and mineral products’ to clarify that the scope exemption is not limited to the early stage of extraction of mineral ores.
Inventories of commodity broker-traders
IN9. The Standard does not apply to the measurement of inventories of commodity brokertraders to the extent that they are measured at fair value less costs to sell.
Cost of Inventories
Costs of purchase
IN10. 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...