Summary of Ias 2

Topics: Asset, Balance sheet, Inventory Pages: 2 (396 words) Published: April 9, 2013
Summary of IAS 2
IAS 2 (Inventories) (International Accounting Standard) deals with inventory and stock in trade. Summary of IAS 2 (Inventories) is provided here in order to enable students and professionals to grasp spirit of IAS 2 (Inventories) in a short span of time. We shall start with definitions as these are very frequently used in our explanation of IAS 2 (Inventories) and very important too. Inventories are assets that are:

* Held for sale in the ordinary course of business
* In the process of production for such sale
* In the form of materials or supplies to be consumed in the production process or in the rendering of services. Net realizable value (NRV) is:
* Estimated selling price in the ordinary course of business * Less estimated cost of completion
* Less estimated cost to sell
Fair value is:
* The amount for which an asset could be exchanged, or a liability settled, * Between knowledgeable willing parties, in an arm’s length transaction. If the entity runs a retail business, then the inventory is generally called merchandise. A manufacturing business will generally call its inventory finished goods; work in process and raw materials. Inventory movement may be recognized either by using perpetual or periodic system. Both of them are allowed treatments by IAS 2 (Inventories). Recording Inventory Movements: Periodic v/s Perpetual System To compute cost of sales in periodic system purchases are recorded in the purchase account. Opening balance of inventory is added to that amount and an inventory count is performed at year end. This inventory count gives an amount of closing inventory. This closing inventory is reduced from accumulated balance of opening inventory and purchases during the year to compute stock in trade. However, in periodic system, accountant does not have any idea about stock in trade so it is difficult, almost impossible to detect stock theft when using periodic system. In perpetual system accountant...
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