In this episode: IAS 2 prescribes standard inventory accounting rules, ensuring balance sheet assets are never carried above what they are expected to realize. Its core principle mandates measuring inventory at the lower of Cost and Net Realizable Value (NRV).

Cost includes purchase, conversion, and systematically allocated overheads at normal capacity, while strictly excluding abnormal waste, administrative overheads, selling costs, and storage expenses. Permitted cost formulas include FIFO and Weighted Average, whereas LIFO is strictly banned. Write-downs are expensed immediately, but must be reversed—unlike under US GAAP—if the inventory’s value subsequently recovers.

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