Question

How does IAS 2 define inventories? And Valuation of stock (inventory) is based on the lower of cost and net realizable value. In the case of Boohoo plc, when might net realizable be value be lower than cost ?

Answer 1

IAS 2 defines inventories as assets which are: (a) held for sale in the ordinary course of business, (b) in the process of production for such sale, (c) in the form of materials or supplies to be consumed in the production process or rendering of services.

Valuation of Inventories:

The standard requires inventories to be measured at the lower of cost and net realisable value (NRV) and outlines acceptable methods of determining cost, including specific identification (in some cases), first-in first-out (FIFO) and weighted average cost.

Under the market method reporting approach, the company's inventory must be reported on the balance sheet at a lower value than either the historical cost or the market value.

Further, writing down inventory prevents a business from carrying forward any losses for recognition in a future period