Question

In: Accounting

Provide the history, overview and objective of the standard that provides guidance on the measurement and...

Provide the history, overview and objective of the standard that provides guidance on the measurement and recognition of inventory.

Solutions

Expert Solution

IAS 2 — Inventories

Overview

IAS 2 Inventories contains the requirements on how to account for several types of inventory. The standard requires inventories to be measured at the lower of cost and net realisable value and outlines acceptable methods of determining cost, including specific identification, first-in first-out (FIFO) and weighted average cost.

History of IAS 2

Date Development Comments
September 1974 Exposure Draft E2 Valuation and Presentation of Inventories in the Context of the Historical Cost System published
October 1975 IAS 2 Valuation and Presentation of Inventories in the Context of the Historical Cost System issued
August 1991 Exposure Draft E38 Inventories published
December 1993 IAS 9 (1993) Inventories issued Operative for annual financial statements covering periods beginning on or after 1 January 1995
18 December 2003 IAS 2 Inventories issued Effective for annual periods beginning on or after 1 January 2005

Objective of IAS 2

The objective of IAS 2 is to prescribe the accounting treatment for inventories. It provides guidance for determining the cost of inventories and for subsequently recognising an expense, including any write-down to net realisable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.


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