ISA2

ISA2 inventories

Objectives:

The objective of this Standard is to prescribe the accounting treatment

for inventories. A primary issue in accounting for inventories is the amount

of cost to be recognized as an asset and carried forward until the related

revenues are recognized. This Standard provides guidance on the

determination of cost and its subsequent recognition as an expense,

including any write-down to net realizable value. It also provides guidance

on the cost formulas that are used to assign costs to inventories.

                                                                                                                                                                   Scope:

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

Measurement of Inventories ;

It includes:                                                                                                                                                     1.Costs of Purchase.     2. Costs of Conversion.        3. Cost of Inventories.

Techniques for the Measurement of Cost

 Techniques for the measurement of the cost of inventories, such as the standard

cost method or the retail method, may be used for convenience if the results

approximate cost. Standard costs take into account normal levels of materials and

supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and,

if necessary, revised in the light of current conditions.

                                                                                                                                                        Recognition as an 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.

Net Realisable Value

The cost of inventories may not be recoverable if those inventories are damaged, if

they have become wholly or partially obsolete, or if their selling prices have

declined. The cost of inventories may also not be recoverable if the estimated costs

of completion or the estimated costs to be incurred to make the sale have

increased. The practice of writing inventories down below cost to net realisable

value is consistent with the view that assets should not be carried in excess of

amounts expected to be realised from their sale or use.

                                                                                                                                                            Disclosure  :

The financial statements shall disclose:                   

(a) the accounting policies adopted

in measuring inventories, including the cost formula used;

(b) the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity;

(c) the carrying amount of inventories carried at fair value less costs to sell;

(d) the amount of inventories recognised as an expense during the period;

(e) the amount of any write-down of inventories recognized;

as an expense in the period;

(f) the amount of any reversal of any write-down that is recognised as a reduction in the amount of inventories recognised as expense in the period