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Commission Regulation (EC) No
2238/2004 of 29 December 2004 amending Regulation (EC) No 1725/2003
adopting certain international accounting standards in accordance
with Regulation (EC) No 1606/2002 of the European Parliament and of
the Council, as regards IASs IFRS 1, IASs Nos 1 to 10, 12 to 17, 19
to 24, 27 to 38, 40 and 41 and SIC Nos 1 to 7, 11 to 14, 18 to 27
and 30 to 33
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Objective
1. 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
2. This Standard
applies to all inventories, except:
(a) work in progress
arising under construction contracts, including
directly related service contracts (see IAS 11 Construction
Contracts);
(b) financial
instruments; and
(c) biological
assets related to agricultural activity and agricultural
produce at the point of harvest (see IAS 41 Agriculture).
3. This Standard
does not apply to the measurement of inventories held
by:
(a) 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.
(b) 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.
4. The inventories
referred to in paragraph 3(a) are measured at net realisable
value at certain stages of production. This occurs, for
example, when agricultural crops have been harvested or
minerals have been extracted and sale is assured under a
forward contract or a government guarantee, or when an active
market exists and there is a negligible risk of failure to
sell. These inventories are excluded from only the measurement
requirements of this Standard.
5. Broker-traders
are those who buy or sell commodities for others or on their
own account. The inventories referred to in paragraph 3(b) are
principally acquired with the purpose of selling in the near
future and generating a profit from fluctuations in price or
broker-traders’ margin. When these inventories are measured
at fair value less costs to sell, they are excluded from only
the measurement requirements of this Standard.
Definitions
6. The following
terms are used in this Standard with the meanings specified:
Inventories
are assets:
(a) held for sale in
the ordinary course of business;
(b) in the process
of production for such sale; or
(c) 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 amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in
an arm’s length transaction.
7. Net realisable
value refers to the net amount that an entity expects to
realise from the sale of inventory in the ordinary course of
business. Fair value reflects the amount for which the same
inventory could be exchanged between knowledgeable and willing
buyers and sellers in the marketplace. The former is an
entity-specific value; the latter is not. Net realisable value
for inventories may not equal fair value less costs to sell.
8. Inventories
encompass goods purchased and held for resale including, for
example, merchandise purchased by a retailer and held for
resale, or land and other property held for resale.
Inventories also encompass finished goods produced, or work in
progress being produced, by the entity and include materials
and supplies awaiting use in the production process. In the
case of a service provider, inventories include the costs of
the service, as described in paragraph 19, for which the
entity has not yet recognised the related revenue (see IAS 18 Revenue).
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