Scope and measurement exclusions

Learning objectives

• Identify the inventories excluded from the scope of IAS 2 (financial instruments, biological assets related to agricultural activity and agricultural produce at the point of harvest).L1, L2
• Distinguish full exclusion from the scope from exclusion from the measurement requirements only (producers of agricultural and forest products, agricultural produce after harvest and minerals measured at net realisable value in accordance with well-established industry practices; commodity broker-traders measuring at fair value less costs to sell), with changes in value then recognised in profit or loss.L2

Normative references

• IAS 2 §2The Standard applies to all inventories except financial instruments (within IAS 32 and IFRS 9) and biological assets related to agricultural activity and agricultural produce at the point of harvest (within IAS 41). The former exclusion (a) relating to construction contracts has been deleted.
• IAS 2 §3The measurement requirements of the Standard do not apply to: (a) inventories held by 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; (b) inventories held by commodity broker-traders measured at fair value less costs to sell. In both cases, changes in value are recognised in profit or loss in the period of the change.
• IAS 2Explains that the inventories referred to in paragraph 3(a) are measured at net realisable value at certain stages of production, for example after harvest or extraction when sale is assured (forward contract, government guarantee) or when an active market exists and there is a negligible risk of failure to sell; those inventories are excluded only from the measurement requirements.
• IAS 2 §5Defines broker-traders as those who buy or sell commodities for others or on their own account; their inventories, acquired principally with the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders' margin, are excluded only from the measurement requirements when they are measured at fair value less costs to sell.

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

13 questions

• Bonds that a manufacturing entity holds for resale are financial instruments: they are excluded from the scope of IAS 2.L1
• The young fir trees a nursery grows for sale as Christmas trees, which are biological assets related to its agricultural activity, are inventories within the scope of IAS 2.L1
• Ferrocourt, a commodity broker-trader in metals, measures its inventories at fair value less costs to sell. These inventories are entirely excluded from the scope of IAS 2.L2
• When a cereal producer measures its stored harvest at net realisable value in accordance with well-established practices in its industry, changes in that value are recognised in profit or loss in the period in which they occur.L2
• Which of these assets falls entirely within the scope of IAS 2?L1
• Pomeraie grows apple trees and sells its apples. Which statement is correct regarding the scope of IAS 2?L2
• Which items are entirely excluded from the scope of IAS 2? (several answers possible)L1
• For which inventories are only the measurement requirements of IAS 2 set aside, the inventories remaining within the scope of the standard? (several answers possible)L2
• Cupronor buys and sells copper on its own account. Its purchases aim at resale in the near future to generate a profit from price fluctuations, and it measures its inventories at fair value less costs to sell. At the reporting date, that value has increased by EUR 40,000 since acquisition. Which treatment applies under IAS 2?L2
• The Silexmine group extracts zinc ore. Once extracted, the ore's sale is assured under a forward contract, and the group measures it at net realisable value, in accordance with a well-established practice in its industry. How are these inventories treated under IAS 2?L2
• Under IAS 2, which feature distinguishes the inventories of a commodity broker-trader?L2
• The Clos-Varenne estate farms its vines, harvests the grapes and turns them into wine, which it sells. Consider three items: the vines, the grapes at the point of harvest and the wine maturing in vats. Which allocation is correct?L2
• Which statements about the measurement of inventories under IAS 2 are correct? (several answers possible)L2