Disclosures

Learning objectives

• Identify the required disclosures: accounting policies and cost formulas, total carrying amount and carrying amount by classification, inventories carried at fair value less costs to sell, amount recognised as an expense, write-downs and reversals with the circumstances leading to the reversals, inventories pledged as security.L2, L3
• Prepare the note on inventories and the reconciliation of the amount recognised as an expense.L3, L4

Normative references

• IAS 2 §36The financial statements disclose: (a) the accounting policies adopted in measuring inventories, including the cost formula used; (b) the total carrying amount of inventories and the carrying amount in classifications appropriate to the entity; (c) the carrying amount of inventories carried at fair value less costs to sell; (d) the amount of inventories recognised as an expense during the period; (e) the amount of any write-down of inventories recognised as an expense (paragraph 34); (f) the amount of any reversal of any write-down recognised as a reduction of that expense (paragraph 34); (g) the circumstances or events that led to those reversals; (h) the carrying amount of inventories pledged as security for liabilities.
• IAS 2 §37Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to users. Common classifications are merchandise, production supplies, materials, work in progress and finished goods.
• IAS 2 §38The amount of inventories recognised as an expense during the period, often referred to as cost of sales, consists of those costs previously included in the measurement of inventory that has now been sold, together with unallocated production overheads and abnormal amounts of production costs. The circumstances of the entity may also warrant the inclusion of other amounts, such as distribution costs.
• IAS 2Version in force before IFRS 18: when an entity presents an analysis of expenses by nature in profit or loss, the cost of inventories recognised as an expense does not appear as such; the entity then discloses the costs recognised as an expense for raw materials and consumables, labour costs and other costs, together with the amount of the net change in inventories for the period. Version amended by IFRS 18 (paragraph 40H, applicable with IFRS 18): the paragraph addresses entities that classify their expenses by nature in the operating category of the statement of profit or loss; the disclosure covers the costs for raw materials and consumables, employee benefits and other costs, together with the net change in inventories for the period.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

8 questions

• Granova has pledged part of its inventories as security for a bank loan. True or false: its financial statements disclose the carrying amount of inventories pledged as security for liabilities.L2
• In 20X2, Pelvane reversed a write-down of inventories recognised in 20X1. In addition to the amount of the reversal, which information does IAS 2 require on this matter?L2
• The consolidation team of the Ostrane group is drawing up the checklist of disclosures on inventories required by IAS 2. Select the items that must appear in it.L3
• The packaging manufacturer Plastiform is preparing its note on inventories. Which breakdown of the carrying amount of inventories meets IAS 2?L3
• Métallerie Corvex is preparing its note on inventories for 20X2. Data: carrying amount of goods sold €820,000; fixed production overheads not allocated to inventories, as production was below normal capacity (case data), €35,000; abnormal amount of production costs due to exceptional wastage of materials €12,000; distribution costs €40,000, which Corvex's documented accounting policy does not include in this amount. What amount of inventories recognised as an expense during the period must Corvex disclose?L3
• Velorance is closing its 20X2 financial year. Data: inventories measured using the first-in, first-out (FIFO) formula; total carrying amount €640,000 (materials €210,000, work in progress €130,000, finished goods €300,000); amount of inventories recognised as an expense €2,900,000; write-downs for the year €25,000; reversal of €8,000 following the end of a temporary price war; inventories of €150,000 pledged as security for a bank loan; no inventories are carried at fair value less costs to sell. Four draft notes are proposed. Which one meets the requirements of IAS 2?L4
• The commodity broker-trader Granexa measures part of its grain inventories at fair value less costs to sell (case data). The rest of its inventories is measured at the lower of cost and net realisable value. True or false: its financial statements disclose the carrying amount of inventories carried at fair value less costs to sell.L3
• You are reviewing Fabrimo's note on inventories for 20X2. Data: materials are measured using the first-in, first-out (FIFO) formula and finished goods using weighted average cost (case data); write-downs of €14,000 were recognised; a reversal of €6,000 was recorded following the recovery of the copper price; inventories of €200,000 secure a bank loan. Select the correct statements on the content of the note.L4