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Recognition as an Expense

When inventories are sold, the carrying amount of those inventories should 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 should 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, should be recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

34.

The process of recognising as an expense the carrying amount of inventories sold results in the matching of costs and revenues.35.

Some inventories may be allocated to other asset accounts, for example, inventory used as a component of self-constructed property, plant or equipment.

Inventories allocated to another asset in this way are recognised as an expense during the useful life of that asset.

36.

Disclosure

The financial statements should disclose:

the accounting policies adopted in measuring inventories, including the cost formula used;a.

the total carrying amount of inventories and the carrying amount in classifications appropriate to the enterprise;b.

the carrying amount of inventories carried at net realisable value;c.

the amount of any reversal of any write-down that is recognised as income in the period in accordance with paragraph 34;d.

the circumstances or events that led to the reversal of a write-down of inventories in accordance with paragraph 34; ande.

the carrying amount of inventories pledged as security for liabilities.f.

37.

Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement

users. Common classifications of inventories are merchandise, production supplies, materials, work in progress and finished goods. The inventories of a service

provider may simply be described as work in progress.

38.

When the cost of inventories is determined using the LIFO formula in accordance with the allowed alternative treatment in paragraph 26, the financial

statements should disclose the difference between the amount of inventories as shown in the balance sheet and either:

the lower of the amount arrived at in accordance with paragraph 24 and net realisable value; ora.

the lower of current cost at the balance sheet date and net realisable value.b.

39.

The financial statements should disclose either:

the cost of inventories recognised as an expense during the period; ora.

the operating costs, applicable to revenues, recognised as an expense during the period, classified by their nature.b.

40.

The cost of inventories recognised as an expense during the period consists of those costs previously included in the measurement of the items of inventory sold

and unallocated production overheads and abnormal amounts of production costs of inventories. The circumstances of the enterprise may also warrant the

inclusion of other costs, such as distribution costs.

41.

Some enterprises adopt a different format for the income statement that results in different amounts being disclosed instead of the cost of inventories recognised as

an expense during the period. Under this different format, an enterprise discloses the amounts of operating costs, applicable to revenues for the period, classified by

their nature. In this case, the enterprise discloses the costs recognised as an expense for raw materials and consumables, labour costs and other operating costs

together with the amount of the net change in inventories for the period.

42.

A write-down to net realisable value may be of such size, incidence or nature to require disclosure under MASB 3, Net Profit or Loss for the Period, Fundamental

Errors and Changes in Accounting Policies.

43.

Effective Date

This Standard becomes operative for financial statements covering periods beginning on or after 1 July, 1999.44.

Appendix 1

Compliance with International Accounting Standards

The requirements of this Standard are consistent, in all material respects, with International Accounting Standard IAS 2 (revised), Inventories.

Exempt enterprises as defined in this Standard need not comply with certain provisions specified in the Standard.

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