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Commission Regulation (EC) No 1725/2003 of 29 September 2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council.

Content

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Consistency - different cost formulas for inventories

Paragraph 11 of IAS 1 (revised 1997), presentation of financial statements, requires that financial statements should not be described as complying with International Accounting Standards unless they comply with all the requirements of each applicable standard and each applicable interpretation issued by the Standing Interpretations Committee. SIC interpretations are not intended to apply to immaterial items.

Reference: IAS 2, inventories.

Issue

1. IAS 2.21 and 2.23 allow various cost formulas (FIFO, weighted average cost or LIFO) for inventories that are ordinarily interchangeable or are not produced and segregated for specific projects.

2. The issue is whether an enterprise may use different cost formulas for different types of inventories.

Consensus

3. An enterprise should use the same cost formula for all inventories having similar nature and use to the enterprise. For inventories with a different nature or use (for example, certain commodities used in one business segment and the same type of commodities used in another business segment), different cost formulas may be justified. A difference in geographical location of inventories (and in the respective tax rules), by itself, is not sufficient to justify the use of different cost formulas

Date of consensus: July 1997

Effective date: Periods beginning on or after 1 January 1999; earlier application is encouraged. Changes in accounting policies should be accounted for according to the transition requirements of IAS 8.46.

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