They are progressively replacing the many different national accounting standards. Introduction : International Accounting Standard 2 Inventories (IAS 2) replaces IAS 2 Inventories (revised in 1993) and It should be applied for annual periods beginning on or after 1 January 2005. Now that we’ve looked at what IAAS is, and why it could be a good choice for your business, let’s look at some of its specific benefits. IAS 2’s default measurement approach is to recognise inventories at the lower of cost and net realisable value. Any information contained within this essay is intended for educational purposes only. - ACCOUNTING CLASS. This can also be on average price. According to this method you assume that items that were first purchased are first sold. Think of the machines in the factory and employees. They want to buy oranges in Africa. It should not be treated as authoritative or accurate when considering investments or other financial products. Main difference with other costing systems is that other costing systems the manufacturing costs are allocated to products on the basis of production volume related measurement such as direct labor hours. In the “Besluit Actuele waarde” the rules of Book 2 title 9 are further explained. Paragraph 6 prescribes that the net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Value added tax is â‚¬0,50 per kg (based on the discounted price). Fair value accounting for inventories is allowed by the RJ and the BW, but not by the IFRS. Furthermore, IAS 2 requires that inventory must be reported on the balance sheet at the lower of cost or net realizable value on an item by item basis (Doupnik, and Perera, 2015; Honkova, 2015; Mia and Qamruzzaman, 2016). The only costs that are taken at cost when incurred are selling and administrative costs. . Replacement value is the value which you have to give if you want to replace your asset for another asset with the same economic value. Advantages of IFRS This is sometimes confusing. Disclaimer: This work has been submitted by a university student. As you can see, fixed costs are included in this system to. ...Summary of IAS 2 IAS 2 (Inventories) (International Accounting Standard) deals with inventory and stock in trade. VAT Registration No: 842417633. Accounting Article 2:384 lid 7 BW gives an own regime for financial instruments, other investments and agricultural inventories. Replacement value with a normal inventory. Because the inventory is valued for the price that you have paid last time. These are examples of direct costs. *You can also browse our support articles here >. Value added tax can be recoverable by the entity from the taxing authorities  . The base stock is the inventory which the company needs for a continued process of the company. This is because it is aligned with the matching principle. The fixed transfer price is $ 200,-. Biological assets (IAS 41)Does not apply to measurement of inventories held by: 1. Under IAS 2, three methods are allowed for measuring the cost of inventories. Therefore the cost is higher. This has advantages in that two parties can transact with each other directly without the need for an intermediary, saving time and cost. This can be an advantage when you have to pay tax. Normally the process of identifying is done once per year, or when changes are made in the production process. Fifo means first in first out. We can see that in this example the profit is much higher under absorption costing. This difference can be best explained with an example: A company buys on 1/1 500products á $1,50. There are more costs that you have to pay. When the company sells on 1/9 the purchase cost of that 200 products are: Total costs of purchase for the period = 280 + 920 = $1200, The worth of the inventory on the end of the period = 100 x 1,40 + 100 x 1,50 = $290. IAS/IFRS adoption 74 4.2.1 Questionnaire design for Vietnameses’ viewpoints regarding IAS/IFRS adoption 74 4.2.2 Data analysis 77 18.104.22.168 Demographic data 77 22.214.171.124 Awareness of VAS, IAS/IFRS and the intention to adopt IAS/IFRS in the future 80 126.96.36.199 Advantages, disadvantages and challenges of IAS/IFRS adoption 83 Because of the better control that you have, you will immediately see differences in stock. cars, heavy machinery, jewelry. What are the advantages and disadvantages of fair value? The system is used to determine the profit which can be pay out. We think that it will be good if the Dutch rules and the IFRS will be the same, because this makes it more clear for the companies if the allowed or not to use fair value accounting for inventories. If the price of the inventory increases you make a revaluation reserve with the same value as the price increasing. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. Paragraph 6 of IAS 2 gives the following definition of fair value for inventories: “Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.”. Summary of IAS 2. In the Netherlands has the Hoge Raad decided that the base stock method still acceptable is for the calculation of the taxable profit. In this example it is not that much. In this case the average is changed every time the company buys new products or when there is a purchase return. In this method you assume that the goods with the highest value will be sold first. 5 components of the set of financial statements, Benefits of Distance Education and Learning from Home. The remaining price difference only consists of the 10 remaining chairs in inventory. (1000 x â‚¬1) , If the replacement value of the inventory decreases, than you must the change deduct from the revaluation reserve. This can be an advantage for managers whose income is dependent of the profit. Note that if the production is equal to the sales, there would be no difference. The difference will disappear. the use of financial reporting standards help to curtail or significantly narrow the divergence in the principles adopted by preparer of financial statements. In absorption costing all of the manufacturing cost (fixed and variable) capitalized in the inventory. 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