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TRƯỜNG ĐẠI HỌC NHA TRANG

KHOA/VIỆN: KẾ TOÁN TÀI CHÍNH

INTERNATIONAL ACCOUNTING

INVENTORY – IAS2

Lecturers: Nguyễn Thị Bảo Ngọc

Group: 9

Khánh Hòa - 2022

 Members of group 9
Name Student ID Completion rate
Phạm Thị Anh Thư 62134285
Trần Thu Uyên 62132640
Nguyễn Nguyên Cát Tường
Nguyễn Thị Kim Sáng
Đặng Thị Quỳnh Như
Nguyễn Xuân Tâm
 Reference
https://www.slideshare.net/Chapter8254ICWAI/inventories-ias-2
https://www.ifrs.org/issued-standards/list-of-standards/ias-2-inventories/
https://www.iasplus.com/en/standards/ias/ias2
https://ifrs.vn/document/ias-2-hang-ton-kho-6925/
https://www.youtube.com/watch?v=l5HUDBQfSZA
 Table of contents

History of IAS 2:..................................................................................................5

I. Overview:..........................................................................................................5
1. The benefits:.................................................................................................5
2. The scope of IAS 2:......................................................................................6
II. Defining inventories/How to define and classify inventory:.......................6
1. Definition of inventories:............................................................................6
2. Main forms of inventories:.........................................................................7
3. Inventory systems:.......................................................................................7
III. Measurement of inventories:.......................................................................9
1. Net Realizable Value:..................................................................................9
2. Cost:..............................................................................................................9
IV. Cost Formula:..............................................................................................11
V. Recognition Of Expense:..............................................................................12
 Chapter 3: Inventory.

History of IAS 2:
Date Develop

Exposure Draft E2 Valuation and Presentation of

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

I. Overview:
An introduction to IAS2, its benefits and scope.
IAS 2 sets out the accounting treatment for inventories, including the
determination of cost, the subsequent recognition of an expense and any write-downs
to net realizable value.
1. The benefits:
This Standard establishes the accounting and reporting of inventory. The benefits and
objective of IAS 2 are that it provide guidance on:
 Differentiating inventories from other assets
 It provides guidance for determining the cost of inventories and for
subsequently recognising an expense, including any write-down to net
realizable value.
  It provides guidance on the cost formulas that are used to assign costs to
inventories.
 Circumstances leading to and the treatment of inventory write-downs.
2. The scope of IAS 2:
Applies to all inventories except:
 Work In Progress (WIP) arising under construction contracts, including directly
related service contracts (IAS 11).
 Financial instruments (IAS 32 and IFRS 9 or IAS 39)
 Biological assets related to agricultural activity (IAS 41)
Does not apply to the measurement of inventories held by:
 Inventories of agricultural and forest products, mineral ores and agricultural
produce to the extent that they are measured at net realizable value in
accordance with the well established practices in certain industries.
 Commodity broker - traders who measure their inventories at fair value less
costs to sell.
Changes in the above inventory values are recognised in profit or loss in the
period of the change.
Example:
In scope Out scope
KBC is a fabric manufacturing company. Its The chickens of a poultry farmer
finished goods are jeans, shirts. Fabric is are biological assets accounted for
classified as an inventory because it is an asset under IAS 41 Agriculture.
beacause: However, when the chickens are
• Held for sale in an ordinary course of slaughtered and after the harvest (as
business defined in IAS 41), the product is
• In the process of production for such a sale an inventory accounted for under
• In the form of materials or supplies to be IAS 2.
consumed in the production process

II. Defining inventories/How to define and classify inventory:

1. Definition of inventories:
Inventories are defined as assets:
 Held for sale in the ordinary course of business;
 In the process of production for sale;
 In the form of materials or supplies to be consumed in the production process in the
rendering of service. Such as cotton, lumber,…
2. Main forms of inventories:
a) Raw materials:
Raw materials are materials that are used in the production process. These
materials are use to create finished goods. Raw materials may be divided into two
categories:
 Direct raw material: The materials that companies directly use in the manufacturing
of a finished goods, such as wood for a chair.
 Indirect raw materials: They are not part of the final product but are instead used
comprehensively in the production process such as oil, screw, tool,.. For indirect raw
materials, depreciation timing will usually be shorter than other long-term assets.
b) Work in progress:
Work in progress (WIP) is an inventory for which the production process is not
yet complete.
c) Finished goods:
Finished goods are types of inventories that are complete and ready for sale.
Manufactured products begin as raw materials and then move into the work-in-
progress (WIP) stage as they are being produced. Finished goods ready for distribution
and sales constitute the finished goods inventory.
d) Merchandise:
Merchandise inventory is goods that have been acquired by a distributor,
wholesaler, or retailer from suppliers, with the intent of selling the goods to third
parties.
While finished goods are final products of one company, the goods may be
components or raw materials to another.
Example: A business transaction between a computer chip manufacturer and
computer manufacturer. The chip is a finished goods to the manufacturer, but it
becomes a component when sold to the computer manufacturer.
3. Inventory systems:
Currently, to manage inventory effectively, many businesses choose 1 of 2
methods: Perpetual Inventory and Periodic Inventory.
  Perpetual Inventory System:
 Regular, continuous, systematic monitoring.
 Reflect the import, export and inventory situation of inventory.
 Export value can be calculated at any time of the period.
 The method of Perpetual Inventory is often applied to manufacturing enterprises
(industry, construction and installation ...) and commercial enterprises trading large
value items such as machinery, equipment, technical and high-quality goods...
 At the end of the accounting period, based on the actual inventory data, compare
and contrast with the inventory data on the accounting book.
 Periodic Inventory System:
 Do not follow, reflect regularly.
 Only reflect the beginning and end of the period, not the import-export in the
period.
 The final row value is calculated.
 Periodic inventory method is often applied in enterprises with many types of goods
and supplies with very different specifications, designs, low value, goods, supplies for
export or regular export (retail stores ...).
Example: A company with an initial inventory value of $500,000 on January 1.
The Company purchased $250,000 of inventory over a three-month period, and after
obtaining an inventory inventory, it determined that it had a final inventory value of
$400,000 on March 31, and equal to the beginning inventory for the following quarter.
 Comparison:
Kê khai thường xuyên Kiểm kê định lỳ
Ưu Tại bất kỳ thời điểm nào ta cũng có Đơn giản, kế toán ko cần ghi chép
thể xác định đc giá trị của hàng xuất nhiều
Nhược Kế toán phải ghi chép nhiều Nếu HTK bị mất mát thì sẽ khó
phát hiện ra
- Perpetual Inventory System:
+ Use Inventory Account.
+ Closing inventory = Opening inventory + Purchases – Purchase returns - Cost of
goods sold (COGS)
- Periodic Inventory System:
+ Use Purchases Account.
+ Cost of goods sold (COGS) = Opening inventory + Purchases - Purchase returns -
Closing inventory

III. Measurement of inventories:

IAS 2 states that an inventory should be measured at the lower of Cost and Net
Realizable Value (NRV).
If NRV > Cost: Recorded at its original cost.
If NRV < Cost: Recorded at Net Realizable Value.
1. Net Realizable Value:
IAS 2 defines NRV as the estimated selling price less the estimated costs of
completion and the estimated costs necessary to make the sale. Exampele: A retailer
bought a large amount of furniture for its business, they must build a gallery and hire a
contractor to deliver the furniture to the buyer's home. So, this company has to add to
the construction costs and carriage outwards, and these costs are deducted from the
saleprice to calculate the NRV.
NRV = Estimated selling price - Estimated costs of completion and costs necessary to
make the sale
Assessing NRV:
Unrecoverable Reversals Sold above and below cost
if circumstances cause If the circumstance that For production materials and
the cost of inventory to caused the write-down no supplies, if the NRV is
be unrecoverable (e.g., longer exist or if there has below cost, it may not be
due to damage or been a positive change in necessary to write them
obsolescence), a write- circumstance, the previous down if the finished product
down of the inventory write-down is reversed. in which they will be
to NRV is recognized The new carrying amount incorporated is expected to
as an expense. is lower of the cost and the be sold at or above its cost.
revised net relizable value.
2. Cost:
Cost means all costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition. The following are the
components of cost included in measuring inventory: Costs Of Purchase; Cost Of
Conversion; Other Costs.
Cost = cost of purchase + cost of conversion + other cost.
a) Cost of purchase:
Includes all the costs incurred in the initial acquisition of an inventory such as
purchaseprice, shipping costs, and any import duties and taxes (not include trade
discount, rebates and other similar accounts).
Cost of Purchase = Purchase price + Import duties + Other directly attributable cost –
Trade Discounts.
b) Costs of conversion:
Conversion costs are the manufacturing costs needed to convert the direct
materials into products, so conversion costs exclude the cost of direct materials. It
included direct labor costs; fixed and variable production heads that are incurred in
converting materials into finished goods, allocated on a systematic basis.
Fixed overheads are generally independent of the level of the production activity while
variable costs are based on production.
Cost of conversion = Costs directly related to the units of production + Fixed and
variable production overheads.
Example:
Fixed costs Variable costs
Depreciation, rent, maintenance, Variable costs include utilities used in
and insurance costs. production, such as water and electricity, indirect
material,…
c) Other costs:
Any other costs should only be recognized if they are incurred in bringing the
inventories to their present location and condition. Example: The cost of transporting a
product from the factory to its retail location is capitalized.
Excluded Costs:
 Abnormal amounts of wasted materials, labor or other production costs;
 Storage costs, unless those costs are necessary in the production process
before a further production stage;
  Administrative overheads that do not contribute to bringing inventories to their
present location and condition;
 Selling costs.

IV. Cost Formula:

The cost of inventories that are not ordinarily interchangeable should be measured
by specifically identifying their costs. Measuring inventory depends on two factors:
The technique used; The cost formula applied.
1) Technique:
Standard Cost Method: considers normal levels of materials and supplies, labor,
efficiency and capacity utilization.
Retail Method: The retail method provides the ending inventory balance for a store by
measuring the cost of inventory relative to the price of the merchandise.
2) Cost Formula:
a) Specific indentifition method:
This is a system for tracking every single item in an inventory individually from
the time it enters the inventory until the time it leaves it.
Example: When you sale an A house for 100.00$, you must to recognition the
specific indentifition cost of an A house is 100.000$.
 Advantage:
+ The specific identification inventory valuation method is used to track each purchase
and its price individually.
+ When used for inventory management, it provides more useful information on sales.
 Disadvantage: this inventory method takes more work upfront than the alternatives.
b) Weighted average cost:
Under the weighted average cost formula, the cost of each item is based on the
weighted average of the cost of similar items at the beginning of a period and the cost
of similar items purchased or produced during the period.
Average Unit Cost = Total Cost Of Inventory / Total Units In Inventory
COGS = Purchase * Average Unit Cost
The cumulative weighted average pricing method: With the method of average
cost after each alternatively, the average cost will be adjusted continuously after each
sale or purchase the inventory.
 Example: A firm has the following transactions with its product R.
1/1/23 Opening inventory: 2000 unit at $80 per unit
5/1/23 Buys 5.000 units at $82 per unit
10/1/23 Buys 4.500 units at $78 per unit
20/1/23 Sells 3.500 units
29/1/23 Sells 1.000 units
The firm uses Weighted Average Cost to value its inventory. What is the inventory
value at 20/1/23 and 29/1/23?
Average unit cost = (2.000 x 80.000 + 5.000 x 82.090 + 4.500 x 78.000) / (2.000 +
5.000 + 4.500) = 80.087đ/sp
COGS 3.500sp = 3.500 * 80.087 = 280.304.347đ
COGS 1.000sp = 1.000 * 80.087 = 80.087.000đ
c) First in First out (FIFO):
The FIFO method assumes that the inventory purchased first is sold first. The
remaining inventory at the end of a period consists of the most recent purchases.
Example: A firm has the following transactions with its product R.
1/1/23 Opening inventory: 0
1/1/23 Buys 20 units at $200 per unit
11/2/23 Buys 22 units at $150 per unit
1/4/23 Sells 18 units at $300 per unit
1/8/23 Buys 16 units at $100 per unit
1/12/23 Sells 22 units at $300 per unit
The firm uses FIFO to value its inventory. What is the inventory value at the end of the
year?
Closing Balance = Opening Balance + Increase – Decrease = 0+20+22+16 – (18+22)
= 18 unit  COGS = 16*100 + 2*150 = 1900$

V. Recognition Of Expense:
When inventories are sold, the carrying amount of those inventories shall be
recognised as an expense in the period in which the related revenue is recognised.
The amount of any write-down of inventories to net realisable value and all
losses of inventories shall be recognised as an expense in the period the write-down or
loss occurs.
The amount of any reversal of any write-down of inventories, arising from an
increase in net realisable value, shall be recognised: as a reduction in the amount of
inventories recognised as an expense in the period in which the reversal occurs.
END.