IAS 2 Inventories Explained: Cost, NRV & Write-Down Reversals

Learn IAS 2 Inventories with worked examples of inventory cost, net realizable value (NRV), write-downs and reversals. Follow the $280,000 manufacturing-cost calculation, then see why a $1,000 item is written down to $830 and later increased to $930 under IFRS. For accounting and IFRS students, with useful supplemental comparisons for CPA and CMA candidates studying financial reporting. The recording's historical references to FAR coverage should not be treated as a current exam blueprint. WORKED EXAMPLES Inventory cost: $3,000 design + $75,000 usable materials + $2,000 transport + $120,000 direct labor + $60,000 fixed overhead + $20,000 variable overhead = $280,000. The $5,000 abnormal waste and $2,000 post-production storage are excluded. NRV write-down: $880 selling price − $50 selling costs = $830 NRV. Compared with $1,000 cost, the write-down is $170: debit inventory write-down expense and credit inventory. Later recovery: $980 selling price − $50 selling costs = $930 NRV. Under IAS 2, the $100 reversal increases inventory and reduces inventory expense. It cannot take the carrying amount above original cost. The $900 replacement cost in this example is not the NRV calculation. CHAPTERS 00:00 IAS 2 inventories overview 00:50 What is inventory? 01:53 Purchase and conversion costs 03:04 Other costs included in inventory 03:45 Abnormal waste, storage and excluded costs 05:07 Custom generator inventory-cost example 06:43 Overhead rates and normal capacity 07:55 Included costs and abnormal waste adjustment 09:09 Storage exclusion and overhead calculation 10:44 Total inventory cost: $280,000 11:06 FIFO, weighted average and the LIFO prohibition 12:05 Standard cost, retail method and specific identification 12:52 Consistent formulas for similar inventories 13:16 Lower of cost and net realizable value 14:08 Write-down reversals and US GAAP comparison 15:15 NRV example: $1,000 cost written down to $830 17:18 Recovery example: NRV rises to $930 19:02 US GAAP treatment after a write-down 20:00 Closing STUDY CLARIFICATIONS • NRV includes deductions for estimated completion costs as well as costs needed to sell; the example has no separate completion cost. • FIFO and weighted average apply to interchangeable items. Specific identification applies to qualifying unique or project-specific items. LIFO is not permitted under IAS 2, despite occasional verbal slips in the recording. • Use the same formula for inventories with similar nature and use. Standard cost and retail techniques are acceptable when they approximate cost. • Fixed production overhead uses normal capacity; low output does not justify loading extra fixed overhead into each unit. Variable overhead follows actual production-facility use. Administrative costs are excluded when they do not help bring inventory to its current location and condition. Recoverable purchase taxes are excluded. • US GAAP clarification: FIFO and average-cost inventory use lower of cost and NRV. LIFO and retail-method inventory still use lower of cost or market, including ceiling/floor limits. The recording overstates the elimination of those rules. US GAAP annual inventory write-downs generally establish a new cost basis; IAS 2 requires qualifying reversals, capped by the original write-down. Continue with the IFRS asset-accounting playlist:    • IFRS Accounting Part 1: Inventories, PPE, ...   Practice with Farhat Lectures: https://farhatlectures.com References for the clarifications: https://www.ifrs.org/issued-standards... https://storage.fasb.org/ASU%202015-1... #IAS2 #IFRS #InventoryAccounting