IPSAS Explained: A Summary of International Public Sector Accounting Standards, 2nd Edition

IPSAS 12: Inventories

Objective

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 recognized as an asset and carried forward until the related revenues are recognized. This standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.

The IFRS on which the IPSAS is based

IAS 2, Inventories

Content

Principal definitions

In accordance with IPSAS 12.9, inventories are assets

a) In the form of materials and supplies to be consumed in the production process

b) In the form of materials or supplies to be consumed or distributed in the rendering of services

c) Held for sale or distribution in the ordinary course of operations

d) In the process of production for sale or distribution

Inventories include goods purchased for resale, such as merchandise purchased by a retailer and held for resale or land and other property held for sale. In addition, inventories encompass finished goods produced or work in progress being produced and include materials and supplies awaiting use in the production process. Specifically in the public sector, inventories also comprise goods purchased or produced by the entity that are distributed to third parties for no charge or for a nominal charge. An example would ...