What must be disclosed about inventories under IAS 2?

Core rule IAS 2 requires entities to provide sufficient disclosure so that users of financial statements can understand the nature, valuation, and movement of inventories during the reporting period. These requirements are concentrated in IAS 2.36, which sets out the specific line items that must appear in the financial statements. How it works The primary disclosure requirement sits in IAS 2.36, which mandates that financial statements disclose: - The accounting policies adopted in measuring inventories, including the cost formula used (e.g., FIFO or weighted average) - The total carrying amount of inventories and the carrying amount in classifications appropriate to the entity (such as raw materials, work in progress, and finished goods) - The carrying amount of inventories carried at fair value less costs to sell - The amount of inventories recognised as an expense during the period - The amount of any write-down of inventories recognised as an expense in the period - The amount of any reversal of a write-down and the circumstances that led to that reversal - The carrying amount of inventories

Must the cost formula used (FIFO or weighted average) be disclosed under IAS 2?

pledged as security for liabilities Beyond paragraph 36, the standard contains related disclosure context spread across several supporting provisions. IAS 2.29 explains that write-downs to net realisable value are generally assessed item by item, which shapes how reversal disclosures are constructed. Where borrowing costs have been capitalised into inventory cost, IAS 2.17 links back to IAS 23, and any such treatment must be reflected in the accounting policy note. For entities that classify expenses by nature rather than function in the statement of profit or loss, IAS 2.39 requires that costs for raw materials and consumables, employee benefits, and other costs be presented together with the net change in inventories for the period — an alternative presentation that still satisfies the intent of expense disclosure. Common pitfalls - Omitting classification breakdowns. Many preparers disclose only a single inventory total. IAS 2.36 explicitly requires the carrying amount in classifications appropriate to the entity, which typically means segmenting by raw materials, work in progress, and finished

Is a breakdown of inventory by category (raw materials, WIP, finished goods) always required?

goods. - Missing write-down and reversal disclosures. Write-downs to net realisable value are common, but reversals are frequently overlooked. Both the amount and the circumstances triggering a reversal must be disclosed under IAS 2.36. - Forgetting pledged inventories. If any inventory is pledged as collateral, this must be separately disclosed — it is a distinct line item requirement, not an optional narrative. - Inconsistent cost formula disclosure. The accounting policy note must clearly state which cost formula applies (FIFO or weighted average). Using different formulas for different inventory classes requires explicit justification in the policies. - Incomplete expense disclosure under nature-of-expense formats. Entities using a nature-based income statement must comply with IAS 2.39 and include the net change in inventories alongside the relevant cost categories — simply reporting cost of goods sold is not sufficient in this format. - Agricultural inventories measured at fair value. Where inventories arise from biological assets and are initially recognised at fair value less costs to sel

What disclosures are required when inventory is pledged as collateral under IAS 2?

l per IAS 2.20, this basis must be disclosed as part of the accounting policy, since it departs from the standard cost model. Key paragraphs to know - IAS 2.36 — The central disclosure paragraph; lists all required disclosures including carrying amounts, expense recognition, write-downs, reversals, and pledged inventories. - IAS 2.39 — Disclosure requirements for entities presenting expenses by nature, requiring presentation of raw material costs and net inventory movement together. - IAS 2.29 — Explains item-by-item assessment of NRV write-downs, relevant to understanding how reversal disclosures are constructed. - IAS 2.17 — Flags that borrowing costs may be included in inventory cost in limited circumstances, which triggers an accounting policy disclosure obligation. - IAS 2.20 — Covers initial recognition of agricultural produce at fair value less costs to sell, creating a distinct disclosure requirement when this measurement basis applies. - IAS 2.10 — Defines the components of inventory cost (purchase, conversion, other costs), underpinning what must be described in the accounting policy not

IAS 2 Inventory Disclosure Requirements

IAS 2 Inventory Disclosure Requirements — Core Rule

IAS 2 requires entities to provide sufficient disclosure so that users of financial statements can understand the nature, valuation, and movement of inventories during the reporting period. These requirements are concentrated in IAS 2.36, which sets out the specific line items that must appear in the financial statements.

How IAS 2 Inventory Disclosure Requirements Works

The primary disclosure requirement sits in IAS 2.36, which mandates that financial statements disclose:

The accounting policies adopted in measuring inventories, including the cost formula used (e.g., FIFO or weighted average)
The total carrying amount of inventories and the carrying amount in classifications appropriate to the entity (such as raw materials, work in progress, and finished goods)
The carrying amount of inventories carried at fair value less costs to sell
The amount of inventories recognised as an expense during the period
The amount of any write-down of inventories recognised as an expense in the period
The amount of any reversal of a write-down and the circumstances that led to that reversal
The carrying amount of inventories pledged as security for liabilities