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AASB102
AASB102
Inventories
This compiled Standard applies to annual periods beginning on or after 1 July 2021. Earlier application is permitted
for annual periods beginning after 24 July 2014 but before 1 July 2021. It incorporates relevant amendments made up
to and including 6 March 2020.
Prepared on 8 June 2021 by the staff of the Australian Accounting Standards Board.
Compilation no. 2
Compilation date: 30 June 2021
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ACCOUNTING STANDARD
AASB 102 INVENTORIES
from paragraph
OBJECTIVE 1
SCOPE 2
DEFINITIONS 6
MEASUREMENT OF INVENTORIES 9
Cost of inventories 10
Costs of purchase 11
Costs of conversion 12
Other costs 15
Cost of inventories of a service provider
Cost of agricultural produce harvested from biological assets 20
Techniques for the measurement of cost 21
Cost formulas 23
Net realisable value 28
RECOGNITION AS AN EXPENSE 34
DISCLOSURE 36
EFFECTIVE DATE 40
WITHDRAWAL OF OTHER PRONOUNCEMENTS
TRANSITION Aus42.1
COMMENCEMENT OF THE LEGISLATIVE INSTRUMENT
WITHDRAWAL OF AASB PRONOUNCEMENTS Aus42.4
APPENDICES
A Australian defined terms
B Australian simplified disclosures for Tier 2 entities
COMPILATION DETAILS
DELETED IAS 2 TEXT
BASIS FOR CONCLUSIONS ON AASB 2007-5
Australian Accounting Standard AASB 102 Inventories (as amended) is set out in paragraphs 1 – Aus42.4 and
Appendices A – B. All the paragraphs have equal authority. Paragraphs in bold type state the main principles.
AASB 102 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation
of Standards, which identifies the Australian Accounting Interpretations, and AASB 1057 Application of Australian
Accounting Standards. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting
Estimates and Errors provides a basis for selecting and applying accounting policies.
Tier 1
For-profit entities complying with AASB 102 also comply with IAS 2.
Not-for-profit entities’ compliance with IAS 2 will depend on whether any “Aus” paragraphs that specifically apply to
not-for-profit entities provide additional guidance or contain applicable requirements that are inconsistent with IAS 2.
Tier 2
Entities preparing general purpose financial statements under Australian Accounting Standards – Simplified
Disclosures (Tier 2) will not be in compliance with IFRS Standards.
AASB 1053 Application of Tiers of Australian Accounting Standards explains the two tiers of reporting requirements.
This compiled version of AASB 102 applies to annual periods beginning on or after 1 July 2021. It incorporates
relevant amendments contained in other AASB Standards made by the AASB up to and including 6 March 2020 (see
Compilation Details).
Objective
1 The objective of this Standard is to prescribe the accounting treatment for inventories. A primary issue in
accounting for inventories is the amount of cost to be recognised as an asset and carried forward until the
related revenues are recognised. This Standard provides guidance on the determination of cost and its
subsequent recognition as an expense, including any write-down to net realisable value. It also provides
guidance on the cost formulas that are used to assign costs to inventories.
Scope
2 This Standard applies to all inventories, except:
(a) [deleted]
(b) financial instruments (see AASB 132 Financial Instruments: Presentation and AASB 9
Financial Instruments); and
(c) biological assets related to agricultural activity and agricultural produce at the point of
harvest (see AASB 141 Agriculture).
Aus2.1 Notwithstanding paragraph 2, in respect of not-for-profit entities, this Standard does not
apply to work in progress of services to be provided for no or nominal consideration
directly in return from the recipients.
3 This Standard does not apply to the measurement of inventories held by:
(a) 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. When such inventories are
measured at net realisable value, changes in that value are recognised in profit or loss in the
period of the change.
(b) commodity broker-traders who measure their inventories at fair value less costs to sell.
When such inventories are measured at fair value less costs to sell, changes in fair value less
costs to sell are recognised in profit or loss in the period of the change.
4 The inventories referred to in paragraph 3(a) are measured at net realisable value at certain stages of
production. This occurs, for example, when agricultural crops have been harvested or minerals have been
extracted and sale is assured under a forward contract or a government guarantee, or when an active market
exists and there is a negligible risk of failure to sell. These inventories are excluded from only the
measurement requirements of this Standard.
5 Broker-traders are those who buy or sell commodities for others or on their own account. The inventories
referred to in paragraph 3(b) are principally acquired with the purpose of selling in the near future and
generating a profit from fluctuations in price or broker-traders’ margin. When these inventories are
measured at fair value less costs to sell, they are excluded from only the measurement requirements of this
Standard.
Measurement of inventories
9 Inventories shall be measured at the lower of cost and net realisable value.
Aus9.1 Notwithstanding paragraph 9, each not-for-profit entity shall measure inventories held for
distribution at cost, adjusted when applicable for any loss of service potential.
Aus9.2 Not-for-profit entities would need to use judgment in determining the factors relevant to the
circumstances in assessing whether there is a loss of service potential for inventories held for
distribution. For many inventories held for distribution, a loss of service potential would be
identified and measured based on the existence of a current replacement cost that is lower than
the original acquisition cost or other subsequent carrying amount. For other inventories held for
distribution, a loss of service potential might be identified and measured based on a loss of
operating capacity due to obsolescence. Different bases for determining whether there has been a
loss of service potential and the measurement of that loss may apply to different inventories held
for distribution within the same entity.
Cost of inventories
10 The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and condition.
Aus10.1 Notwithstanding paragraph 10 and subject to paragraph Aus10.2, not-for-profit entities
shall initially measure the cost of inventories at current replacement cost where the
consideration for those inventories is significantly less than fair value principally to enable
the entity to further its objectives. AASB 1058 Income of Not-for-Profit Entities addresses
the recognition of related amounts.
Aus10.2 As a practical expedient, where a not-for-profit entity acquires inventory for consideration
that is significantly less than fair value principally to enable the entity to further its
objectives, the entity may elect to recognise an item of inventory based on an assessment of
the materiality either of the individual item or of inventories at an aggregate or portfolio
level.
Costs of conversion
12 The costs of conversion of inventories include costs directly related to the units of production, such as direct
labour. They also include a systematic allocation of fixed and variable production overheads that are
incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of
production that remain relatively constant regardless of the volume of production, such as depreciation and
maintenance of factory buildings, equipment and right-of-use assets used in the production process, and the
cost of factory management and administration. Variable production overheads are those indirect costs of
production that vary directly, or nearly directly, with the volume of production, such as indirect materials
and indirect labour.
13 The allocation of fixed production overheads to the costs of conversion is based on the normal capacity of
the production facilities. Normal capacity is the production expected to be achieved on average over a
number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting
from planned maintenance. The actual level of production may be used if it approximates normal capacity.
The amount of fixed overhead allocated to each unit of production is not increased as a consequence of low
production or idle plant. Unallocated overheads are recognised as an expense in the period in which they are
incurred. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of
production is decreased so that inventories are not measured above cost. Variable production overheads are
allocated to each unit of production on the basis of the actual use of the production facilities.
14 A production process may result in more than one product being produced simultaneously. This is the case,
for example, when joint products are produced or when there is a main product and a by-product. When the
costs of conversion of each product are not separately identifiable, they are allocated between the products
on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of
each product either at the stage in the production process when the products become separately identifiable,
or at the completion of production. Most by-products, by their nature, are immaterial. When this is the case,
they are often measured at net realisable value and this value is deducted from the cost of the main product.
As a result, the carrying amount of the main product is not materially different from its cost.
Other costs
15 Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the
inventories to their present location and condition. For example, it may be appropriate to include non-
production overheads or the costs of designing products for specific customers in the cost of inventories.
16 Examples of costs excluded from the cost of inventories and recognised as expenses in the period in which
they are incurred are:
(a) abnormal amounts of wasted materials, labour or other production costs;
(b) storage costs, unless those costs are necessary in the production process before a further
production stage;
(c) administrative overheads that do not contribute to bringing inventories to their present location
and condition; and
(d) selling costs.
17 AASB 123 Borrowing Costs identifies limited circumstances where borrowing costs are included in the cost
of inventories.
18 An entity may purchase inventories on deferred settlement terms. When the arrangement effectively
contains a financing element, that element, for example a difference between the purchase price for normal
credit terms and the amount paid, is recognised as interest expense over the period of the financing.
Cost formulas
23 The cost of inventories of items that are not ordinarily interchangeable and goods or services
produced and segregated for specific projects shall be assigned by using specific identification of their
individual costs.
24 Specific identification of cost means that specific costs are attributed to identified items of inventory. This
is the appropriate treatment for items that are segregated for a specific project, regardless of whether they
have been bought or produced. However, specific identification of costs is inappropriate when there are
large numbers of items of inventory that are ordinarily interchangeable. In such circumstances, the method
of selecting those items that remain in inventories could be used to obtain predetermined effects on profit or
loss.
25 The cost of inventories, other than those dealt with in paragraph 23, shall be assigned by using the
first-in, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula
for all inventories having a similar nature and use to the entity. For inventories with a different
nature or use, different cost formulas may be justified.
26 For example, inventories used in one operating segment may have a use to the entity different from the
same type of inventories used in another operating segment. However, a difference in geographical location
of inventories (or in the respective tax rules), by itself, is not sufficient to justify the use of different cost
formulas.
27 The FIFO formula assumes that the items of inventory that were purchased or produced first are sold first,
and consequently the items remaining in inventory at the end of the period are those most recently
purchased or produced. Under the weighted average cost formula, the cost of each item is determined from
the weighted average of the cost of similar items at the beginning of a period and the cost of similar items
purchased or produced during the period. The average may be calculated on a periodic basis, or as each
additional shipment is received, depending upon the circumstances of the entity.
Recognition as an expense
34 When inventories are sold, the carrying amount of those inventories shall be recognised as an expense
in the period in which the related revenue is recognised. The amount of any write-down of inventories
to net realisable value and all losses of inventories shall be recognised as an expense in the period the
write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from
an increase in net realisable value, shall be recognised as a reduction in the amount of inventories
recognised as an expense in the period in which the reversal occurs.
Aus34.1 When inventories held for distribution by a not-for-profit entity are distributed, the carrying
amount of those inventories shall be recognised as an expense. The amount of any write-down of
inventories for loss of service potential and all losses of inventories shall be recognised as an
expense in the period in which the write-down or loss occurs. The amount of any reversal of any
write-down of inventories arising from a reversal of the circumstances that gave rise to the loss of
service potential shall be recognised as a reduction in the amount of inventories recognised as an
expense in the period in which the reversal occurs.
35 Some inventories may be allocated to other asset accounts, for example, inventory used as a component of
self-constructed property, plant or equipment. Inventories allocated to another asset in this way are
recognised as an expense during the useful life of that asset.
Disclosure
36 The financial statements shall 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 in the period in
accordance with paragraph 34;
(f) the amount of any reversal of any write-down that is recognised as a reduction in the
amount of inventories recognised as expense in the period in accordance with paragraph 34;
(g) the circumstances or events that led to the reversal of a write-down of inventories in
accordance with paragraph 34; and
(h) the carrying amount of inventories pledged as security for liabilities.
Effective date
40 An entity shall apply this Standard for annual periods beginning on or after 1 January 2018. Earlier
application is encouraged for periods beginning after 24 July 2014 but before 1 January 2018. If an entity
applies this Standard for a period beginning before 1 January 2018, it shall disclose that fact.
40A [Deleted]
40B [Deleted]
40C [Deleted by the AASB]
40D [Deleted]
40E AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15, issued in December
2014, amended the previous version of this Standard as follows: amended paragraphs 2, 8, 29 and 37 and
deleted paragraph 19. An entity shall apply those amendments when it applies AASB 15.
40F AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (as
amended) amended the previous version of this Standard as follows: amended paragraph 2(b) and deleted
paragraph 40A. Paragraph 40B, added by AASB 2010-7, was deleted by AASB 2014-1 Amendments to
Australian Accounting Standards. Paragraph 40D, added by AASB 2014-1 was deleted by AASB 2014-7
Amendments to Australian Accounting Standards arising from AASB 9 (December 2014). An entity shall
apply those amendments when it applies AASB 9.
40G AASB 16 Leases, issued in February 2016, amended paragraph 12. An entity shall apply that amendment
when it applies AASB 16.
Transition
Aus42.1 Not-for-profit entities shall apply paragraph Aus9.1 and measure inventories held for
distribution at cost, adjusted when applicable for any loss of service potential, on a
prospective basis from the beginning of the annual period to which this Standard is first
applied.
Aus42.2 Under paragraph Aus42.1, not-for-profit entities shall make any necessary adjustment to the
opening balance of inventories held for distribution, previously carried at the lower of cost and
current replacement cost, against opening retained earnings for the current annual period.
Accordingly, comparative information is not adjusted.
1 Paragraphs 10–18 and 20–27 in this Standard apply to both inventories (as defined in paragraph 6) and inventories held for distribution
(as defined in paragraph Aus6.1).
Table of Standards
Standard Date made FRL identifier Commence- Effective date Application,
ment date (annual periods saving or
… on or after …) transitional
provisions
AASB 102 24 Jul 2015 F2015L01624 31 Dec 2017 (beginning) 1 Jan 2018 see (a) below
AASB 16 23 Feb 2016 F2016L00233 31 Dec 2018 (beginning) 1 Jan 2019 see (b) below
AASB 1058 9 Dec 2016 F2017L00042 31 Dec 2018 (beginning) 1 Jan 2019 see (b) below
AASB 2016-7 9 Dec 2016 F2017L00043 31 Dec 2016 (beginning) 1 Jan 2017 see (c) below
AASB 1060 6 Mar 2020 F2020L00288 30 Jun 2021 (beginning) 1 Jul 2021 see (d) below
(a) Entities may elect to apply this Standard to periods beginning after 24 July 2014 but before 1 January 2018.
(b) Entities may elect to apply this Standard to annual periods beginning before 1 January 2019, provided that AASB 15 Revenue
from Contracts with Customers is also applied to the same period.
(c) AASB 2016-7 deferred the effective date of AASB 15 (and its consequential amendments in AASB 2014-5) for not-for-profit
entities to annual reporting periods beginning on or after 1 January 2019, instead of 1 January 2018. However, earlier
application of AASB 102 (2015) incorporating the text that relates to AASB 15 is permitted, provided that AASB 15 is also
applied.
(d) Entities may elect to apply this Standard to annual periods beginning before 1 July 2021.
Table of amendments
Paragraph affected How affected By … [paragraph/page]
Alternative solutions
BC10 The Board considered developing a proposed solution only in respect of long-lived inventories held for
distribution by not-for-profit entities in order to address the practical problems raised by constituents.
Transition
BC21 The Board considered that, in some cases, measuring at the lower of cost and current replacement cost
versus measuring at cost, adjusted when applicable for any loss of service potential, would give rise to
different carrying amounts for inventories held for distribution. The Board concluded that, on transition to
the changed requirement, it is appropriate to require not-for-profit entities to adjust any difference
prospectively against opening retained earnings and not amend comparative information on the basis that:
(a) there are likely to be practical problems associated with trying to retrospectively determine
whether there have been further losses of service potential and precisely when they occurred,
which may not be overcome by the impracticability override in AASB 108 Accounting Policies,
Changes in Accounting Estimates and Errors;
(b) the relatively short period of development involved in amending AASB 102 and, therefore, the
absence of a long period during which constituents would be made aware of the changes; and
(c) requiring rather than permitting the prospective transitional approach is desirable from a
comparability viewpoint.