INVENTORIES

Valuation of inventory requires recognition of that portion of an asset which have been used up in the income earning cycle and what amount of assets are still useable. The latter amount will be carried forward in the financial statements with the possibility of some write-down to net realisable value.

 

This IAS does not apply to WIP from construction contracts, financial instruments (trading or other) or biological assets.

 

Inventory may go through certain stages of production. At each stage the value of the underlying asset changes. The accounting process should capture the net-realisable value of the asset.

 

Inventories are essentially assets which are:

 

-) held for sale in the ordinary course of business

-) used in the process of production intended for sale

-) held in the form of materials or supplies which are    

   consumed in the production process or used in the

   provision of services.