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    PAS 2 Summary Objective of PAS 2

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    Charles Barcela
    PAS 2 provides guidance on determining the cost of inventories and subsequent recognition as an expense. It covers assets held for sale, those in production, and materials consumed in production. Cost includes purchase, conversion and other costs to bring inventories to their present location and condition. Inventories must be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price less costs to complete and sell. Any write-down to net realizable value is recognized as an expense.

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    PAS 2 Summary Objective of PAS 2

    Uploaded by

    Charles Barcela
    101 views3 pages
    PAS 2 provides guidance on determining the cost of inventories and subsequent recognition as an expense. It covers assets held for sale, those in production, and materials consumed in production. Cost includes purchase, conversion and other costs to bring inventories to their present location and condition. Inventories must be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price less costs to complete and sell. Any write-down to net realizable value is recognized as an expense.

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    PAS 2 Summary

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    PAS 2 provides guidance on determining the cost of inventories and subsequent recognition as an expense. It covers assets held for sale, those in production, and materials consumed in production. Cost includes purchase, conversion and other costs to bring inventories to their present location and condition. Inventories must be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price less costs to complete and sell. Any write-down to net realizable value is recognized as an expense.

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    © All Rights Reserved
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    101 views3 pages

    PAS 2 Summary Objective of PAS 2

    Uploaded by

    Charles Barcela
    PAS 2 provides guidance on determining the cost of inventories and subsequent recognition as an expense. It covers assets held for sale, those in production, and materials consumed in production. Cost includes purchase, conversion and other costs to bring inventories to their present location and condition. Inventories must be measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price less costs to complete and sell. Any write-down to net realizable value is recognized as an expense.

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    PAS 2 Summary

    Objective of PAS 2
    The objective of PAS 2 is to endorse the accounting treatment for inventories. It provides
    direction for deciding the fetched of inventories and for subsequently recognizing a cost,
    counting any write-down to net feasible esteem. It also provides direction on the cost formulas
    that are utilized to allot costs to inventories.
    Scope
    Inventories incorporate assets held for sale within the conventional course of business (finished
    products), assets within the production process for a sale within the ordinary course of trade
    (work in process), and materials and supplies that are consumed in production (raw materials).
    [PAS 2.6]
    In any case, PAS 2 avoids certain inventories from its scope: [PAS 2.2] I. work-in-process
    emerging under development contracts (see PAS 11) II. financial instruments (see PAS 39) III.
    organic resources related to agrarian activity and agrarian produce at the point of harvest (PAS
    41).
    Too, whereas the following are inside the scope of the standard, PAS 2 does not apply to the
    estimation of inventories held by [PAS 2.3] producers of agricultural and forest items, rural
    create after collect and minerals and mineral items, to the degree that they are measured at net
    realizable value (above or underneath fetched) in understanding with well-established practices
    in those businesses. When such inventories are measured at net realizable esteem, changes in that
    esteem are recognized in benefit or misfortune within the period of the alter. product brokers and
    merchants who degree their inventories at reasonable esteem fewer costs to offer. When such
    inventories are measured at reasonable esteem less costs to offer, changes in reasonable esteem
    fewer costs to offer are recognized in profit or misfortune within the period of the change.
    Fundamental principle of PAS 2
    Inventories are required to be stated at the lower of cost and net realizable value (NRV). [PAS
    2.9}
    Measurement of Inventories
    Cost should include all: [PAS 2.10] costs of purchase (including taxes, transport, and handling)
    net of trade discounts received costs of conversion (including fixed and variable manufacturing
    overheads) and other costs incurred in bringing the inventories to their present location and
    condition PAS 23 Borrowing Costs identifies some limited circumstances where borrowing costs
    (interest) can be included in cost of inventories that meet the definition of aqualifying asset.
    [PAS 2.17 and PAS 23.4] Inventory cost should not include: [PAS 2.16 and 2.18] abnormal
    waste storage costs administrative overheads unrelated to production selling costs foreign
    exchange differences arising directly on the recent acquisition of inventories invoiced in a
    foreign currency interest cost when inventories are purchased with deferred settlement terms.
    The standard cost and retail methods may be used for the measurement of cost, provided that the
    results approximate actual cost.
    [PAS 2.21-22] For inventory items that are not interchangeable, specific costs are attributed to
    the specific individual items of inventory.
    [PAS 2.23] For items that are interchangeable, PAS 2 allows the FIFO or weighted average cost
    formulas.
    [PAS 2.25] The LIFO formula, which had been allowed prior to the2003 revision of PAS 2, is no
    longer allowed.
    The same cost formula should be used for all inventories with similar characteristics as to their
    nature and use to the entity.
    For groups of inventories that have different characteristics, different cost formulas may be
    justified.
    Write-Down to Net Realisable Value
    NRV is the estimated selling cost within the ordinary course of trade, less the estimated cost of
    completion and the estimated costs fundamental to form the sale. [IAS 2.6] Any write-down to
    NRV ought to be recognized as a cost within the period in which the write-down happens. Any
    inversion ought to be recognized within the wage explanation within the period in which the
    inversion happens. [PAS 2.34]
    Expense Recognition
    PAS 18 Revenue addresses income acknowledgment for a lot of products. When inventories are
    sold and income is perceived, the carrying sum of those inventories is perceived as a cost
    (regularly called cost-of-goods sold). Any write-down to NRV and any stock misfortunes are too
    perceived as an expense when they happen. [PAS 2.34]
    Disclosure
    Required Disclosures: [PAS 2.36]
    - accounting policy for inventories 
    - carrying amount, generally classified as merchandise, supplies, materials, work in
    progress, and finished goods. The classifications depend on what is appropriate for the
    entity.
    - carrying amount of any inventories carried at fair value less costs to sell 
    - amount of any write-down of inventories recognised as an expense in the period 
    - amount of any reversal of a write-down to NRV and the circumstances that led to such
    reversal 
    - carrying amount of inventories pledged as security for liabilities 
    - cost of inventories recognised as expense (cost of goods sold).

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