Author: Phnom Penh HR

Objective

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 recognised as an asset and carried forward until the related revenues are recognised. This Standard provides guidance on the determination of cost and its subsequent recognition as 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.

Scope

This Standard applies to all inventories, except:

1. [deleted]
2. financial instruments (see IAS 32 Financial Instruments: Presentation and IFRS 9 Financial Instruments); and
3. biological assets related to agricultural activity and agricultural produce at the point of harvest (see IAS 41 Agriculture).

This Standard does not apply to the measurement of inventories held by:

1. producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the extent that they are measured at net realisable value in accordance with well-established practices in those industries. When such inventories are measured at net realisable value, changes in that value are recognised in profit or loss in the period of the change.
2. commodity broker-traders who measure their inventories at fair value less costs to sell. When such inventories are measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or loss in the period of the change.

Definitions

Inventories are assets:

1. held for sale in the ordinary course of business;
2. in the process of production for such sale; or
3. in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See IFRS 13 Fair Value Measurement.)

Measurement of inventories

Inventories shall be measured at the lower of cost and net realisable value.

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. 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.

Disclosure

The financial statements shall disclose:

• the accounting policies adopted in measuring inventories, including the cost formula used;
• the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity;
• the carrying amount of inventories carried at fair value less costs to sell;
• the amount of inventories recognised as an expense during the period; the amount of any write-down of inventories recognised as an expense in the period in accordance with paragraph 34;
• 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 in accordance with paragraph 34;
• the circumstances or events that led to the reversal of a write-down of inventories in accordance with paragraph 34; and
• the carrying amount of inventories pledged as security for liabilities

Accounting Standard

Objective This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content. Scope An entity shall apply this Standard in preparing and presenting general purpose financial statements in accordance with International Financial Reporting Standards (IFRSs). Definitions Accounting policies are defined in paragraph 5 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, and the term is used in thisStandard with the same meaning. General purpose financial statements (referred to as ‘financial statements’) are those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs. Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. International Financial Reporting Standards (IFRSs) are Standards and Interpretations issued by the International Accounting Standards Board (IASB). They comprise: a)       International Financial Reporting Standards; b)       International Accounting Standards; c)        IFRIC Interpretations; and d)       SIC Interpretations. Material: Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. Materiality depends on the nature or magnitude of information, or both. An entity assesses whether information, either individually or in combination with other information, is material in the context of its financial statements taken as a whole. Information is obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information. The following are examples of circumstances that may result in material information being obscured: a)       information regarding a material item, transaction or other event is disclosed in the financial statements but the language used is vague or unclear; b)       information regarding a material item, transaction or other event is scattered throughout the financial statements; c)       dissimilar items, transactions or other events are inappropriately aggregated; d)       similar items, transactions or other events are inappropriately disaggregated; and the understandability of the financial statements is reduced as a result of material information being hidden by immaterial information to the extent that a primary user is unable to determine what information is material. Assessing whether information could reasonably be expected to influence decisions made by the primary users of a specific reporting entity’s general purpose financial statements requires an entity to consider the characteristics of those users while also considering the entity’s own circumstances. Many existing and potential investors, lenders and other creditors cannot require reporting entities to provide information directly to them and must rely on general purpose financial statements for much of the financial information they need. Consequently, they are the primary users to whom general purpose financial statements are directed. Financial statements are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyse the information diligently. At times, even well-informed and diligent users may need to seek the aid of an adviser to understand information about complex economic phenomena. Notes contain information in addition to that presented in the statement of financial position, statement(s) of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows. Notes provide narrative descriptions or disaggregations of items presented in those statements and information about items that do not qualify for recognition in those statements. Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognised in profit or loss as required or permitted by other IFRSs. The components of other comprehensive income include: a)       changes in revaluation surplus (see IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets); b)       remeasurements of defined benefit plans (see IAS 19 Employee Benefits); c)        gains and losses arising from translating the financial statements of a foreign operation (see IAS 21 The Effects of Changes in Foreign Exchange Rates); d)       gains and losses from investments in equity instruments designated at fair value through other comprehensive income in accordance with paragraph 5.7.5 of IFRS 9 Financial Instruments; (da) gains and losses on financial assets measured at fair value throughother comprehensive income in accordance with paragraph 4.1.2A ofIFRS 9. e)       the effective portion of gains and losses on hedging instruments in a cash flow hedge and the gains and losses on hedging instruments that hedge investments in equity instruments measured at fair value through other comprehensive income in accordance with paragraph 5.7.5 of IFRS 9 (see Chapter 6 of IFRS 9); f)        for particular liabilities designated as at fair value through profit or loss, the amount of the change in fair value that is attributable to changes in the liability’s credit risk (see paragraph 5.7.7 of IFRS 9); g)       changes in the value of the time value of options when separating the intrinsic value and time value of an option contract and designating as the hedging instrument only the changes in the intrinsic value (see Chapter 6 of IFRS 9); h)       changes in the value of the forward elements of forward contracts when separating the forward element and spot element of a forward contract and designating as the hedging instrument only the changes in the spot element, and changes in the value of the foreign currency basis spread of a financial instrument when excluding it from the designation of that financial instrument as the hedging instrument (see Chapter 6 of IFRS 9); i)         insurance finance income and expenses from contracts issued within the scope of IFRS 17 Insurance Contracts excluded from profit or loss when total insurance finance income or expenses is disaggregated to include in profit or loss an amount determined by a systematic allocation applying paragraph 88(b) of IFRS 17, or by an amount that eliminates accounting mismatches with the finance income or expenses arising on the underlying items, applying paragraph 89(b) of IFRS 17; and j)         finance income and expenses from reinsurance contracts held excluded from profit or loss when total reinsurance finance income or expenses is disaggregated to include in profit or loss an amount determined by a systematic allocation applying paragraph 88(b) of IFRS 17. Owners are holders of instruments classified as equity. Profit or loss is the total of income less expenses, excluding the components of other comprehensive income. Reclassification adjustments are amounts reclassified to profit or loss in the current period that were recognised in other comprehensive income in the current or previous periods. Total comprehensive income is the change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income comprises all components of ‘profit or loss’ and of ‘other comprehensive income’. Disclosure Disclosure Initiative (Amendments to IAS 1) was approved for publication by fourteen members of the International Accounting Standards Board. Disclosure of Accounting Policies, which amends IAS 1 and IFRS Practice Statement 2, was approved for issue by 10 of 13 members of the International Accounting Standards Board (Board). Ms Flores dissented. Her dissent is set out after the Basis for Conclusions. Messrs Gast and Mackenzie abstained in view of their recent appointment to the Board.